Oesmer vs. Paraiso Development Corporation

A co-owner may validly alienate their undivided share in a co-owned property without the consent of the other co-owners, and the alienation is limited to the portion allotted to the alienating co-owner upon the termination of the co-ownership.

Eight siblings inherited two unregistered parcels of agricultural land in Carmona, Cavite. Six of the siblings signed a Contract to Sell with respondent Paraiso Development Corporation, while two refused. After receiving ₱100,000 as "option money," the signatories sought to rescind the contract, prompting the filing of a complaint for nullification.

• The Properties: Eight siblings—petitioners Ernesto, Enriqueta, Librado, Rizalino, Bibiano Jr., Leonora, along with Adolfo and Jesus—co-owned two unregistered agricultural lots in Carmona, Cavite (Lot 720 and Lot 834) inherited from their parents.
• The Negotiation: In March 1989, Ernesto met with Sotero Lee, President of respondent Paraiso Development Corporation, to broker the sale of the properties.
• The Contract to Sell: A Contract to Sell was drafted. Ernesto and Enriqueta signed first, receiving a ₱100,000 check as "option money." Subsequently, Rizalino, Leonora, Bibiano Jr., and Librado signed the document. Adolfo and Jesus did not sign.
• Rescission and Lawsuit: On November 1, 1989, the petitioners wrote to the respondent expressing their intention to rescind the contract and return the ₱100,000. On May 30, 1991, all eight siblings filed a complaint for the nullification of the contract before the RTC.

• Lack of Written Authority: Petitioners argued that the signatures of the five co-owners on the margins of the contract did not confer written authority upon Ernesto to sell their shares as an agent, rendering the contract void as to them under Article 1874 of the Civil Code.
• Absence of Direct Consent: Petitioners maintained that the signatures did not signify direct consent to sell, claiming Enriqueta signed merely as a witness and the others did not understand the document due to low education.
• Conditional Consent: Petitioners asserted that any consent was subject to a suspensive condition requiring the unanimous approval of all co-owners, which was not fulfilled.
• Absence of Buyer's Signature: Petitioners claimed the contract was void altogether because the respondent corporation did not sign it to indicate its consent to be bound.
• Void Unilateral Promise to Sell: Petitioners argued the contract was a void unilateral promise to sell because the ₱100,000 was option money lacking a consideration distinct from the purchase price.

• Implied Consent and Partial Performance: Respondent countered that its consent to be bound was demonstrated by its partial performance, specifically the tender of the ₱100,000 option money accepted by the petitioners.
• Nature of the Payment: Respondent maintained that the payment constituted earnest money forming part of the purchase price, perfecting a binding contract to sell rather than a void unilateral promise.

• Binding Effect on Co-owners: Whether the Contract to Sell is binding on the five co-owners who signed the margins but did not grant written authority to Ernesto.
• Consent and Suspensive Condition: Whether the signatures of the five co-owners signified direct consent to sell their shares, or if such consent was subject to a suspensive condition requiring unanimous approval.
• Validity Absent Buyer's Signature: Whether the Contract to Sell is void due to the absence of the respondent's signature.
• Nature of the Contract: Whether the Contract to Sell is a void unilateral promise to sell because the ₱100,000 payment was option money lacking distinct consideration.

• Binding Effect on Co-owners: The contract was deemed binding on the five signatory co-owners because they signed the document directly, obviating the need for written authority under Article 1874, which applies only when a sale is made through an agent.
• Consent and Suspensive Condition: Direct and unconditional consent was established. Enriqueta's active participation in negotiations and subsequent acts of compliance—such as updating tax payments and transferring tax declarations to her name—negated her claim of being a mere witness. Ignorance of the contract's contents due to low education was rejected, a signatory being presumed to know the contents and duty-bound to have the document explained if necessary. The contract contained no suspensive condition requiring unanimous consent; Article 493 of the Civil Code allows a co-owner to alienate an undivided share without the consent of the others.
• Validity Absent Buyer's Signature: The contract was not void for lack of the buyer's signature. Respondent's consent was established by its partial performance, having tendered ₱100,000 that was accepted by the petitioners.
• Nature of the Contract: The contract was not a void unilateral promise to sell. The ₱100,000, although denominated as "option money," was actually earnest money because it formed part of the purchase price, binding the buyer to pay the balance and signifying a perfected contract to sell.

• Alienation of Undivided Shares by a Co-owner — Article 493 of the Civil Code provides that each co-owner has full ownership of their part and may alienate, assign, or mortgage it without the consent of the other co-owners. The effect of the alienation is limited to the portion allotted to the alienating co-owner upon the termination of the co-ownership. The Court applied this doctrine to hold that the six signatory co-owners could validly sell their 6/8 share despite the refusal of the two other co-owners to sign.
• Earnest Money vs. Option Money — Earnest money is part of the purchase price given where there is already a perfected sale, binding the buyer to pay the balance. Option money is a distinct consideration for an option contract given where the sale is not yet perfected, which the would-be buyer may forfeit without obligation to buy. The Court applied this distinction to reclassify the ₱100,000 "option money" as earnest money, thereby upholding the contract as a perfected Contract to Sell rather than a void unilateral promise.
• Written Authority for Agents in Sale of Immovable Property — Article 1874 of the Civil Code requires that the authority of an agent to sell a piece of land or any interest therein must be in writing; otherwise, the sale is void. The Court applied this rule to clarify that because the five co-owners signed the contract directly rather than through an agent, the requirement for written authority was inapplicable.
• Presumption of Knowledge of Contract Contents — A person who signs a contract is presumed to know its contents. Illiterate persons or those with low education are negligent if they fail to have the contract read or explained to them before signing, estopping them from avoiding the contract on the ground of ignorance. The Court relied on this principle to reject the petitioners' claim that they did not understand the contract due to their low educational attainment.

• "Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership." — The codal provision defining the right of a co-owner to alienate their undivided share and the limits of such alienation.
• "Earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option." — The standard distinction applied to determine the true nature of the initial payment and the existence of a perfected contract.

• Cecilia Mata v. Court of Appeals, 207 SCRA 753 (1992) — Followed. Cited for the rule that a signatory is presumed to know the contents of a contract and that illiteracy or low education does not excuse ignorance if the signatory failed to have the document explained.
• Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204 (2000) — Followed. Cited for the principle that contracts are perfected by mere consent upon acceptance of the offer, and the parties are bound to the stipulations and consequences thereof.
• Limson v. Court of Appeals, G.R. No. 135929, 20 April 2001 — Followed. Cited for the distinction between earnest money and option money, and the rule that the intention of the contracting parties is ascertained from all the words used in the contract, not just a particular word.

• Article 493, Civil Code — Governs the rights of co-owners over their undivided shares. Applied to affirm that the six signatory co-owners could validly sell their respective shares without the consent of the two non-signatory co-owners.
• Article 1874, Civil Code — Requires written authority for an agent to sell immovable property. Applied to determine that the contract was not void for lack of written authority because the co-owners signed directly, not through an agent.

Consuelo Ynares-Santiago, Ma. Alicia Austria Martinez, Romeo J. Callejo, Sr.