G.R. No. 191033 - The Orchard Golf and Country Club, Inc. vs. Yu

Case Summary (G.R. No. 191033)

Key Dates and Procedure

March 16, 1988: Contract of Lease with Option to Buy executed.
January 1990: Death of Encarnacion Bartolome.
January 10, 1990: Victor executed an Affidavit of Self-Adjudication; TCT B-37615 cancelled and TCT V-14249 issued in Victor’s name.
March 12–14, 1990: Petitioner served written notice exercising its option to lease and tendered March rent.
April 23, 1990: Petitioner filed Civil Case No. 3337-V-90 for specific performance and damages against Victor and the Register of Deeds.
May–July 1990: Motion to intervene by Andres Lanozo; referral to the Department of Agrarian Reform and reassignment to RTC Branch 172; intervention denied.
January 4, 1993: RTC, Branch 172, dismissed the complaint and ordered petitioner to pay P30,000 as attorney’s fees.
December 5, 1994: Court of Appeals affirmed the RTC decision.
April 5, 2000: Supreme Court decision (subject of this summary).

Contract Terms

The March 16, 1988 Contract of Lease with Option to Buy:

Grant of an option (to lease or lease with purchase) exercisable within two years from signing.
Reservation consideration: P3,000.00 per month for the option period.
Exercise of option required formal written notice to the lessor within the two-year period.
If petitioner chose to lease, it could take actual possession; lease term six years, renewable for another six years.
Rental: P15,000.00 per month for the first six years, and P18,000.00 per month for the renewal period.

Facts Relating to Performance and Tender

Petitioner regularly paid the P3,000.00 reservation fees to Encarnacion until her death; thereafter petitioner attempted to pay Victor who refused to accept payments. The lower courts noted that reservation fees were admitted except for those allegedly for February and March 1990.
Petitioner served written notice within the option period and tendered rent for March 1990. Victor refused to accept the tender and to surrender possession.
Petitioner deposited the March 1990 rent (P15,000.00) and additional reservation fees for February and March into a China Banking Corporation savings account opened in Victor’s name; deposits covered March to July 30, 1990 (five months).

Issues Presented on Review

Petitioner assigned five errors alleging that the Court of Appeals erred by: (A) ruling the notice to exercise the option was not transmissible; (B) ruling the notice had to be served personally on Encarnacion; (C) finding the contract one-sided and onerous in favor of petitioner; (D) ruling that a registered tenancy (as asserted by Lanozo) was fatal to the contract’s validity; and (E) holding petitioner liable for defendant-appellee’s attorney’s fees.

Applicable Law

Constitution: 1987 Philippine Constitution (case decided in 2000; therefore the 1987 Constitution is the constitutional basis).
Civil Code: Article 1311 (contracts take effect between the parties, their assigns and heirs, except where rights and obligations are not transmissible by their nature, stipulation or law).
Relevant jurisprudence and doctrine addressing transmissibility of contractual rights and duties, the personal nature of certain contracts, and prior decisions holding that property-related contracts and obligations binding on predecessors pass to heirs.

Legal Analysis — Transmissibility of the Contract

Article 1311 establishes the general rule that contracts bind the parties, their assigns and heirs, unless the rights or obligations are intransmissible by nature, stipulation, or law.
The Court reviewed doctrinal and foreign authorities explaining that intransmissible contracts are those essentially personal, requiring special personal qualifications (skill, judgment, integrity, etc.) that cannot be performed by others, or where the law/stipulation renders them non-transmissible.
Applying that test, the Court concluded the Contract of Lease with Option to Buy did not require personal services or special qualifications of Encarnacion that would terminate the contract upon her death. The obligor’s duty — to deliver possession and effect the lease upon exercise of the option — was not a personal service that extinguishes with death and thus was transmissible to her heir.
Precedent was cited to support the principle that heirs succeed to rights and inherit liabilities affecting the property they receive; heirs cannot evade obligations that burden the inherited property.

Application of Law to the Facts

There was neither a contractual stipulation nor a legal provision making the contract intransmissible. The nature of the obligations (transfer/surrender of possession and reconveyance-type duties) was transmissible.
Petitioner fulfilled the contractual requisites to exercise the option: it paid the reservation fees during the two-year option period (admitted for most months), it served written notice within the option period (documented), and it tendered rent and deposited same in an account in Victor’s name after Encarnacion’s death. These actions satisfied the contract’s procedural and substantive requirements for exercise of the option to lease.
Consequently, Victor, as heir and successor in interest, was bound to surrender possession and perform the obligations of his predecessor under the Contract of Lease with Option to Buy.

Tenancy and Intervention Issue

The Motion to Intervene brought by Andres Lanozo, claiming tenancy under agraria

Case Syllabus (G.R. No. 191033)

Case Caption, Source and Authorship

G.R. No. 118248, April 05, 2000; reported at 386 Phil. 107, First Division.
Decision authored by Justice Ynares‑Santiago.
Penned by Associate Justice Corona Ibay‑Somera at the Court of Appeals (CA) level; concurrence by Justices Asaali S. Isnani and Celia Lipana‑Reyes noted in the source.
Lower court decision at trial level penned by Judge Teresita Dizon‑Capulong, Regional Trial Court (RTC) of Valenzuela, Branch 172.
Concurring members of the Supreme Court decision: Chief Justice Davide, Jr. (Chairman), and Justices Puno, Kapunan, and Pardo.

Subject Matter and Parties

Petitioner: DKC Holdings Corporation (DKC).
Private respondent: Victor U. Bartolome (sole heir of Encarnacion Bartolome).
Respondent: Register of Deeds for Metro Manila, District III.
Subject property: A parcel of land of 14,021 square meters located in Malinta, Valenzuela, Metro Manila, originally titled under Transfer Certificate of Title (TCT) No. B‑37615 in the name of Encarnacion Bartolome (deceased).

Contract at Issue — Nature and Terms (Contract of Lease with Option to Buy)

Date of contract: March 16, 1988.
Parties to contract: Encarnacion Bartolome (lessor) and DKC (lessee with option to buy).
Key provisions:
- DKC was given an option to lease or lease with purchase the subject land; the option had to be exercised within two years from contract signing.
- For reservation of the option, DKC agreed to pay P3,000.00 per month.
- To exercise the option within the two‑year period, DKC must serve formal written notice upon the lessor (Encarnacion).
- If DKC chose to lease, it could take actual possession; lease term six years, renewable for another six years.
- Monthly rental: P15,000.00 for the first six years; P18,000.00 for the next six years if renewed.

Facts: Performance, Death of Lesssor and Succession

DKC regularly paid the P3,000.00 monthly reservation fee to Encarnacion until her death in January 1990.
After Encarnacion’s death, DKC attempted to continue payments to Victor Bartolome as her sole heir; Victor refused to accept those payments.
On January 10, 1990, Victor executed an Affidavit of Self‑Adjudication over all properties of Encarnacion, including the subject lot.
The Register of Deeds cancelled TCT No. B‑37615 and issued TCT No. V‑14249 in the name of Victor U. Bartolome.

Exercise of Option and Tender of Rent

DKC served notice (record shows service via registered mail) that it was exercising the option to lease and tendered P15,000.00 as rent for March:
- Notice served March 14, 1990 (tender of March rent).
- DKC also prepared/used a letter dated March 12, 1990 as notice of intention to exercise the option (Exhibit "J" cited).
Victor refused to accept the tendered rental fee and refused to surrender possession of the property.

DKC’s Actions After Refusal

DKC opened China Banking Corporation Savings Account No. 1‑04‑02558‑I‑1 in the name of Victor Bartolome and deposited:
- P15,000.00 for the March rent.
- P6,000.00 reservation fees for February and March (the two months in dispute).
DKC attempted to register and annotate the Contract of Lease with Option to Buy on the title of Victor to the property; the Register of Deeds accepted fees but refused to register or annotate or even enter the instrument in the day book or primary register.

Complaint Filed and Relief Sought

On April 23, 1990, DKC filed a complaint for specific performance and damages against Victor and the Register of Deeds, docketed Civil Case No. 3337‑V‑90 (raffled to Branch 171, later transferred to Branch 172 which handles agrarian land matters).
Reliefs sought by DKC included:
- Surrender and delivery of possession of the subject land per contract terms.
- Surrender of title for registration and annotation of the Contract on the title.
- Damages claimed: P500,000.00 actual damages, P500,000.00 moral damages, P500,000.00 exemplary damages.
- Attorneys’ fees claimed: P300,000.00.

Motion to Intervene and Agrarian Issues

On May 8, 1990, Andres Lanozo filed a Motion for Intervention with Motion to Dismiss, claiming to be a tenant‑tiller of the subject property (agricultural riceland) for 45 years and invoking the Comprehensive Agrarian Reform Law.
May 18, 1990: RTC issued an Order referring the case to the Department of Agrarian Reform (DAR) for preliminary determination and certification as to whether the case was proper for trial by the court.
July 4, 1990: RTC referred the case to Branch 172 (designated to hear agrarian land cases) after DAR issued letter‑certification that referral for preliminary determination was no longer required.
July 16, 1990: RTC issued an Order denying Lanozo’s Motion to Intervene, holding Lanozo’s rights could be raised in another proceeding in due time.

Trial, RTC Decision and CA Review

After trial on the merits, RTC, Branch 172 rendered Decision on January 4, 1993:
- Dismissed DKC’s Complaint.
- Ordered DKC (petitioner) to pay Victor P30,000.00 as attorneys’ fees.
Court of Appeals affirmed the RTC Decision in toto on December 5, 1994 (CA‑G.R. CV No. 40849).
DKC filed Petition for Review on Certiorari to the Supreme Court contesting the CA ruling.

Assignments of Error Presented to the Supreme Court (as stated by petitioner)

First Assignment: CA erred in ruling that the provision on notice to exercise the option was not transmissible.
Second Assignment: CA erred in ruling that the notice of option must be served on Encarnacion Bartolome personally.
Third Assignment: CA erred in ruling that the Contract was one‑sided and onerous in favor of DKC.
Fourth Assignment: CA erred in ruling that the existence of a registered tenancy was fatal to the validity of the Contract.