Heirs of Anselma Godines vs. Spouses Demaymay

An oral contract of sale of immovable property is valid and enforceable among the parties where the contract has been partially or fully executed through payment and delivery, notwithstanding Article 1403(2) of the Civil Code (Statute of Frauds), which merely regulates evidentiary formalities and does not affect the intrinsic validity of executed transactions.

Anselma Yuson Godines died on August 11, 1968, leaving a residential lot in Divisoria, Cawayan, Masbate. During her lifetime, she allegedly obtained a loan from Matilde Demaymay and permitted the spouses Demaymay to use the land for fifteen years pursuant to an oral agreement. In August 1987, petitioners—Anselma's heirs—discovered that Tax Declaration No. 6111 in Anselma's name had been cancelled and replaced by Tax Declaration No. 7194 issued in Matilde's name, purportedly by virtue of a Deed of Confirmation of Sale executed by petitioner Alma in 1970. Petitioners claimed Alma was fourteen years old and residing in Cebu at the time, rendering the deed impossible and fraudulent.

• The Property: A residential lot located at Divisoria, Cawayan, Masbate, originally declared under Tax Declaration No. 6111 in the name of Anselma Yuson with an assessed value of P330.00 and an area of sixty-eight square meters; subsequent survey revealed the correct area to be three hundred thirty-two square meters.
• The Alleged Lease: Anselma obtained a loan from Matilde Demaymay and orally agreed to allow the spouses Demaymay to use the land for a period of fifteen years, without reducing the agreement to writing.
• Discovery of the Sale: In August 1987, petitioners discovered the cancellation of Anselma's tax declaration and the issuance of a new declaration in Matilde's name, allegedly based on a Deed of Confirmation of Sale dated October 12, 1970, purportedly executed by Alma Godines.
• Petitioners' Allegations: Alma Godines was born in 1956, making her fourteen years old in 1970; she was residing in Bogo, Cebu from 1969 to 1975; the spouses Demaymay procured the deed fraudulently and in bad faith.
• Respondents' Version: The spouses Demaymay claimed absolute ownership through a verbal sale consummated in January 1967 for P1,460.00; Anselma received an initial payment of P1,010.00 but died before a formal contract could be executed; Alma received the final installment of P450.00 and executed the confirmation; Nida Demaymay Pepito testified to witnessing the initial payment and the execution of a receipt in the local vernacular reading "Resibo Sa Kwarta Nga Gibayad Sa Yuta Sa Kantidad Na Php1,460.00 nga bili sa Yuta."
• Possession and Taxation: The spouses Demaymay remained in possession of the property for more than fifteen years, and the property was tax-declared under Matilde's name following the alleged full payment in 1970.

• Nullity of the Deed: Petitioners maintained that the Deed of Confirmation of Sale was null and void ab initio because Alma Godines was a minor and physically absent in Cebu at the time of its alleged execution in 1970, making her signature impossible.
• Nature of the Agreement: Petitioners argued that the transaction between Anselma and the spouses Demaymay was a mere loan secured by a fifteen-year lease agreement, not a sale.
• Fraud and Bad Faith: Petitioners contended that the respondents acted fraudulently and illegally in procuring the tax declaration transfer and the confirmation deed, causing them mental anguish and social humiliation.

• Validity of Oral Sale: Respondents countered that a valid oral contract of sale existed between Anselma and the spouses Demaymay, which was partially executed upon payment of the initial installment and fully executed upon full payment and transfer of possession.
• Inapplicability of Statute of Frauds: Respondents argued that Article 1403(2) of the Civil Code (Statute of Frauds) did not apply because the contract was no longer executory but had been partially and subsequently fully consummated by the parties' performance.
• Estoppel: Respondents maintained that Alma Godines was estopped from denying the validity of the transaction, having accepted the final payment and voluntarily executed the confirmation deed.

• Validity of Oral Contract: Whether the Court of Appeals gravely erred in ruling that the heirs of Anselma Godines are bound by the oral contract of sale allegedly executed in favor of the spouses Demaymay.

• Validity of Oral Contract: The oral sale was valid and enforceable. Article 1356 of the Civil Code provides that contracts are obligatory in whatever form they are entered into, provided essential requisites are present. While Article 1403(2) requires sales of real property to be in writing to be enforceable, this formality is for evidentiary purposes and does not affect the intrinsic validity of the contract. The Statute of Frauds applies only to executory contracts, not to those partially or fully executed. Here, the contract was partially consummated when Anselma received the initial payment of P1,010.00, and fully executed upon receipt of the balance and transfer of possession. Possession of the property for over fifteen years and payment of real property taxes served as indicators of the executed sale. Consequently, petitioners as heirs are bound by the valid disposition made by their ancestor, and the property no longer formed part of Anselma's estate.

• Statute of Frauds (Article 1403[2]) — The provision requires certain contracts, including sales of real property, to be evidenced by writing to be enforceable by action. However, it applies only to executory contracts where no performance has yet been made. It does not apply to contracts that have been partially or fully executed through payment, acceptance, or delivery. Non-compliance does not invalidate the contract but merely renders it unenforceable as evidence without the required writing.
• Form versus Substance (Articles 1356 and 1358) — The failure to observe the prescribed form for contracts affecting real rights does not render the transaction invalid. The form required under Article 1358 is not essential to validity but merely for convenience and efficacy. The intrinsic validity of a contract depends on the presence of essential requisites (consent, object, cause), not on formalities, unless the law specifically requires form for validity.
• Ratification by Performance — A contract unenforceable under the Statute of Frauds may be ratified by the parties' conduct, such as the failure to object to the presentation of oral evidence proving the contract, or by acceptance of benefits under the contract (e.g., receiving payment or taking possession).

• "Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present."
• "The Statute of Frauds applies only to executory contracts and not to those which have been executed either fully or partially."
• "While the Statute of Frauds aims to safeguard the parties to a contract from fraud or perjury, its non-observance does not adversely affect the intrinsic validity of their agreement. The form prescribed by law is for evidentiary purposes, non-compliance of which does not make the contract void or voidable, but only renders the contract unenforceable by any action."
• "Possession of the property and payment of real property taxes may serve as indicators that an oral sale of a piece of land has been performed or executed."

• The Estate of Pedro C. Gonzales v. The Heirs of Marcos Perez, 620 Phil. 47 (2009) — Cited for the principle that failure to observe the form under Article 1358 does not invalidate acts or contracts; the form is merely for convenience.
• Heirs of Soledad Alida v. Campana, G.R. No. 226065 — Cited for the doctrine that the Statute of Frauds applies only to executory contracts, not executed or partially executed ones.
• Swedish Match, AB v. Court of Appeals, 483 Phil. 735 (2004) — Cited for the purpose of the Statute of Frauds (to prevent fraud and perjury) and its effect on contract validity.
• Carbonnel v. Poncio, 103 Phil. 655 (1958) — Cited for the principle that the Statute of Frauds is confined to executory contracts where fraud is possible, and its application to executed contracts would promote fraud.
• Orregu v. Leonardo, 103 Phil. 870 (1958) — Cited for the proposition that possession and tax payment indicate an executed oral sale.

• Article 1305, Civil Code — Defines a contract as a meeting of minds between two persons whereby one binds himself with respect to the other to give something or to render some service.
• Article 1356, Civil Code — Provides that contracts are obligatory in whatever form they may have been entered into, provided all essential requisites for validity are present, except when the law requires a specific form for validity or enforceability.
• Article 1358, Civil Code — Enumerates acts and contracts that must appear in a public instrument, including the creation, transmission, modification, or extinguishment of real rights over immovable property.
• Article 1403(2), Civil Code — The Statute of Frauds, requiring certain contracts, including sales of real property, to be in writing to be enforceable.

Leonen (Chairperson), Inting, Delos Santos, and Lopez, JJ.