Serna vs. Dela Cruz

A verbal contract for the sale of real property is enforceable by action despite non-compliance with the Statute of Frauds where the contract has been partially or totally performed, as the Statute applies only to executory contracts and not to those which have been consummated either totally or partially; further, judicial admissions regarding the existence and execution of a document are conclusive upon the party making them and may be contradicted only by showing that the admission was made through palpable mistake or that no such admission was made.

Petitioners Marito and Maria Fe Serna owned two parcels of land in Aramaywan, Quezon, Palawan registered under OCT Nos. E-6101 and E-6103. In 1995, they entered into a verbal agreement with respondents Tito and Iluminada Dela Cruz for the sale of the properties for P300,000.00. Between 1995 and 1998, respondents made partial payments totaling P252,379.27. On November 9, 1998, the parties executed a handwritten "Agreement" acknowledging these partial payments and stating the remaining balance of P47,621.00, witnessed by Nelson Cordero. Respondents remained in possession of the properties and collected produce therefrom. When respondents tendered the balance, petitioners refused to accept it and indicated their intent to sell the properties to other buyers at a higher price.

• Nature of the Action: Respondents instituted an action for specific performance and damages against petitioners before the Regional Trial Court (RTC) of Puerto Princesa City, Branch 95, seeking to compel execution of a deed of absolute sale and claiming damages for petitioners' refusal to complete the transaction.
• The Alleged Agreement: Respondents alleged that on various dates they paid petitioners P252,379.27 for the purchase of the subject properties, and that on November 9, 1998, the parties executed a handwritten Agreement acknowledging these partial payments and specifying a remaining balance of P47,621.00, witnessed by Nelson Cordero.
• Petitioners' Defense: Petitioners admitted the existence of a prior agreement to sell but claimed it was voluntarily abandoned by respondents. They asserted that full payment was a sine qua non condition for transfer of ownership, and that respondents failed to pay the balance on agreed dates in December 1998. They also claimed that prior to the sale, the agreement was actually a mortgage, and respondents gathered coconuts because petitioners could not return P70,000.00 borrowed from them.
• Trial Proceedings: After pre-trial, trial on the merits ensued. The RTC found that petitioners judicially admitted the existence of the Agreement in their Answer, and that respondents had paid a substantial portion of the price and were in possession of the properties.

• Genuineness and Due Execution: Petitioners maintained that respondents failed to establish their cause of action because the genuineness and due execution of the handwritten Agreement, a private document, was not established, citing their adamant denial of having signed the same.
• Nature of the Contract: Petitioners argued that the transaction was a contract to sell, not a contract of sale, wherein full payment of the purchase price was a sine qua non condition precedent for the transfer of ownership; otherwise, a deed of sale would have been executed upon initial payment.
• Statute of Frauds: Assuming the Agreement existed, petitioners contended it was unenforceable under Articles 1356, 1358, and 1403 of the New Civil Code (Statute of Frauds) because it was not reduced to a public document.
• Possession and Damages: Petitioners asserted that respondents' possession was not in the concept of an owner but as mortgagees, and that the award of damages and attorney's fees lacked basis as bad faith was not proven.

• Questions of Fact: Respondents countered that the petition raised questions of fact regarding the genuineness of the Agreement and the nature of the contract, which are beyond the purview of a Rule 45 petition; factual findings of the CA are binding absent showing of exceptions.
• Lower Courts' Findings: Respondents argued that both lower courts concurred in finding that the genuineness and due execution of the Agreement was established through judicial admissions and testimonial evidence, and that the contract was one of sale, not a contract to sell.
• Statute of Frauds Inapplicability: Respondents maintained that the Statute of Frauds applies only to executory contracts, not to those totally or partially performed; the contract was partially executed through payment of P252,379.27 and respondents' possession and use of the properties for several years.

• Genuineness and Due Execution: Whether the genuineness and due execution of the handwritten Agreement dated November 9, 1998 was established.
• Statute of Frauds: Whether the verbal contract of sale is barred by the Statute of Frauds.

• Genuineness and Due Execution: The genuineness and due execution of the Agreement was established. Petitioners judicially admitted in their Answer the existence and execution of the Agreement by expressly admitting paragraph 6 of the complaint which described the document; such judicial admissions are legally binding and do not require proof. Compliance with Rule 132, Section 20(a) of the Rules of Court was satisfied through the testimony of witness Nelson Cordero, who saw the document executed.
• Statute of Frauds: The verbal contract of sale is not barred by the Statute of Frauds. Article 1403(2)(e) of the Civil Code requires agreements for the sale of real property to be in writing to be enforceable, but this applies only to executory contracts where no performance has been made. Where, as here, the sale has been partially executed through payment of P252,379.27 out of P300,000.00, the contract is taken out of the Statute's scope. Furthermore, under Article 1405, contracts infringing the Statute of Frauds are ratified by acceptance of benefits; petitioners ratified the contract by accepting the substantial partial payments.
• Nature of the Contract and Rescission: The transaction was a contract of sale, not a contract to sell. Under Article 1592 of the Civil Code, even where the parties stipulated that rescission would occur upon failure to pay at the agreed time, the vendee may pay after the expiration of the period as long as no demand for rescission has been made judicially or by notarial act. Petitioners never rescinded the contract through these means, thus respondents retained the right to pay the balance.
• Damages and Attorney's Fees: The award of damages and attorney's fees was proper. Petitioners acted in bad faith—defined as a dishonest purpose or conscious doing of a wrong—by refusing to accept the balance in order to sell the properties to another buyer at a higher price. The issue of propriety of damages is factual and not reviewable under Rule 45; the lower courts' finding of bad faith is supported by substantial evidence.

• Judicial Admissions — An admission, verbal or written, made by a party in the course of proceedings in the same case does not require proof and is legally binding upon the party making it; it may be contradicted only by showing that it was made through palpable mistake or that no such admission was made (Rule 129, Section 4, Rules of Court).
• Statute of Frauds and Partial Execution — The Statute of Frauds (Article 1403(2)(e), Civil Code) applies only to executory contracts and not to those which have been consummated either totally or partially; partial execution through payment and acceptance removes the contract from the Statute's coverage, as applying the Statute to partially performed contracts would promote fraud by allowing a party to retain benefits while evading obligations.
• Ratification of Unenforceable Contracts — Contracts infringing the Statute of Frauds are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them (Article 1405, Civil Code).
• Rescission of Sale of Immovables — In the sale of immovable property, even if stipulated that rescission shall of right take place upon failure to pay at the agreed time, the vendee may pay even after the expiration of the period as long as no demand for rescission has been made upon him either judicially or by a notarial act (Article 1592, Civil Code).
• Bad Faith — Bad faith does not simply connote bad judgment or simple negligence; it involves a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty due to some motive or interest or ill will that partakes the nature of fraud.

• "The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially. 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." — Articulates the rationale for excluding partially executed contracts from the Statute of Frauds.
• "Bad faith does not simply connote bad judgment or simple negligence; it involves a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty due to some motive or interest or ill will that partakes the nature of fraud." — Defining the standard for bad faith justifying moral damages.
• "An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof... The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made." — Establishing the conclusive effect of judicial admissions.

• Swedish Match, AB v. Court of Appeals, 483 Phil. 735 (2004) — Controlling precedent establishing that the Statute of Frauds applies only to executory contracts and not to those partially or totally performed; quoted extensively for the rationale that applying the Statute to performed contracts would promote fraud.
• Orduña v. Fuentebella, 636 Phil. 151 (2010) — Cited for the principle that the Statute of Frauds requires certain contracts to be evidenced by writing to prevent fraud and perjury.
• Aglibot v. Santia, 700 Phil. 404 (2012) — Cited for the rule that the form required under the Statute of Frauds is for convenience or evidentiary purposes only and does not affect validity.
• Nacar v. Gallery Frames, 716 Phil. 267 (2013) — Applied for the rule that monetary awards in judgments shall earn legal interest at 6% per annum from the finality of the decision until full satisfaction.

• Article 1356, Civil Code — Contracts shall be obligatory in whatever form they may have been entered into, provided all essential requisites for validity are present; when the law requires a certain form for validity or enforceability, that requirement is absolute.
• Article 1358(1), Civil Code — Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property must appear in a public document; sales of real property are governed by Articles 1403, No. 2, and 1405.
• Article 1403(2)(e), Civil Code — An agreement for the sale of real property or of an interest therein is unenforceable unless in writing and subscribed by the party charged (Statute of Frauds).
• Article 1405, Civil Code — Contracts infringing the Statute of Frauds are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.
• Article 1592, Civil Code — In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.
• Rule 129, Section 4, Rules of Court — Judicial admissions do not require proof and may be contradicted only by showing palpable mistake or that no such admission was made.
• Rule 132, Section 20(a), Rules of Court — Proof of private documents may be made by anyone who saw the document executed or written.

Leonen (Chairperson), Hernando, Inting, and J. Lopez, JJ.