Case Summary (A.C. No. 4863)
Alleged Option Agreement
Magdalena Estate asserted that the 1943 deed included an option: if either party decided to sell, the other had an irrevocable right to purchase at the seller’s chosen price. In January 1946, Berg purportedly offered his one-third share for ₱200,000, which Magdalena Estate accepted and sought to pay by May 31, 1947.
Procedural Posture and Statute of Frauds Issue
Plaintiff’s Reply and Statute of Frauds Defense
Berg denied any binding sale agreement, invoking the statute of frauds (Rule 123, RPC) for lack of a written contract, note, or memorandum signed by him to evidence the alleged sale.
Trial Court Findings
The trial court concluded that no enforceable sale contract had been proven, granted Berg’s partition petition, and dismissed the counterclaim.
Central Issue on Appeal
Whether a Binding Contract Existed or Only Negotiations
The Supreme Court identified the pivotal question as whether the parties indeed formed a contract for sale at ₱200,000 or merely negotiated without consummation.
Statute of Frauds Principles
Requirements for a Sufficient Memorandum
Under the old Civil Code and Rule 123, any writing—formal or informal—that contains parties, subject-matter, price, and signature may satisfy the statute of frauds. Multiple documents may be read together if properly connected.
Application of Treasury Department Applications as Memoranda
Exhibits 3 and 4 as Written Evidence
Magdalena Estate offered two applications to the U.S. Treasury Department (for sale and for license to purchase) as exhibits. Exhibit 3 (Berg’s application) identified seller, purchaser, subject, and ₱200,000 price, signed by Berg. Exhibit 4 (Magdalena Estate’s application) referred to raising ₱400,000 to purchase Berg’s one-third share, implicitly linking to the ₱200,000 figure.
Satisfaction of Statute of Frauds by Exhibits
The Court held that Exhibits 3 and 4, read together with the 1943 deed’s option clause, met the statute’s content and signature requirements, constituting a valid memorandum of the alleged sale contract.
Contract Terms, Payment Period, and Performance
Payment Term and Reasonable Time
Exhibit 3 implied immediate cash payment upon Treasury license. Although the license issued promptly, Magdalena Estate failed to pay within a reasonable time, raising funds only in March 1947—well after
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Facts of the Case
- The subject property is the Crystal Arcade building located in the City of Manila, co-owned pro indiviso by Ernest Berg (one-third interest) and Magdalena Estate, Inc. (two-thirds interest).
- In September 1943 the parties executed a deed of sale transferring a one-third undivided share, with an express stipulation granting the non-selling co-owner an irrevocable option of first refusal at the seller’s price.
- By early 1946 a dispute arose over the management and intended partition of the property, prompting Berg to file for judicial partition because the parties could not agree on management or division.
- Magdalena Estate, Inc. answered with (a) a special defense asserting that Berg had offered in January 1946 to sell his one-third share for ₱200,000, which Magdalena accepted, and (b) a counterclaim for specific performance and damages of ₱100,000 allegedly suffered when Berg allegedly refused to accept payment within the agreed period (extended to May 31, 1947).
Procedural History
- Trial court received testimonial and documentary evidence, including the original deed containing the option clause (Exhibit 1) and two license applications filed with the U.S. Treasury Department (Exhibits 3 and 4).
- Berg moved to strike or disregard any oral agreement for sale on grounds of the statute of frauds, pointing out absence of a signed note or memorandum evidencing the alleged ₱200,000 sale agreement.
- The trial court found that no binding sale agreement had been consummated and granted Berg’s petition for partition under Rule 71 of the Rules of Court.
- Magdalena Estate appealed the adverse decision, contending primarily that Exhibits 3 and 4, when read with Exhibit 1, satisfied the statute of frauds and established a valid contract of sale entitling it to specific performance.
Issues Presented
- Whether the parties actually concluded an agreement for the sale of Berg’s one-third interest in Crystal Arcade for ₱200,000, or whether the discussions remained only preliminary negotiations.
- Whether Exhibits 3 and 4—two applications to the U.S. Treasury Department for licenses to sell (Berg) and to buy (Magdalena)—together with the original option deed (Exhibit 1