Facts:
1. Sea Foods Corporation (SFC) owns Lot No. 300 in Zamboanga City, and UMCUPAI consists of squatters investing in its purchase.
2. In 1991, UMCUPAI negotiated with SFC to buy Lot No. 300, indicating it would fund the purchase through a loan from NHMF.
3. Both parties signed a Letter of Intent to Sell by SFC and a Letter of Intent to Purchase by UMCUPAI, specifying a price of P105 per square meter.
4. UMCUPAI’s loan application failed due to some members’ unwillingness to join.
5. UMCUPAI suggested subdividing Lot No. 300. Consequently, it was subdivided into Lot Nos. 300-A, 300-B, and 300-C.
6. UMCUPAI purchased Lot No. 300-A but failed to buy Lot No. 300-C within the agreed timeframe even after an extension.
7. SFC sold Lot No. 300-C to BRYC-V Development Corporation after UMCUPAI’s extended timeframe to secure funds lapsed.
8. UMCUPAI petitioned the RTC to annul the sale of Lot No. 300-C to BRYC, claiming the Letter of Intent gave it a preferred right.
9. The RTC dismissed UMCUPAI’s complaint, interpreting the Letter of Intent as a non-binding preliminary agreement, not a bilateral reciprocal contract.
10. The Court of Appeals affirmed the RTC’s decision, leading UMCUPAI to seek certiorari with the Supreme Court.
Issues:
1. Whether the Letter of Intent constitutes a bilateral reciprocal contract under Article 1479, first paragraph of the Civil Code.
2. Whether UMCUPAI had a prior and better right to purchase Lot No. 300-C based on the Letter of Intent.
3. Whether the factual findings of the lower courts, when affirmed by the appellate court, warrant a reversal given the presented exceptions.
Court’s Decision:
1. **Letter of Intent as Bilateral Reciprocal Contract:**
– The Supreme Court ruled that the Letter of Intent did not amount to a bilateral reciprocal contract. It merely documented the mutual intentions of the parties (SFC to sell and UMCUPAI to buy) but did not bind them to complete the sale.
2. **Preferred Right to Purchase:**
– The Court dismissed the notion that UMCUPAI had a better right to purchase Lot No. 300-C based on the Letter of Intent. SFC retained ownership until full payment, and UMCUPAI’s failure to secure funding nullified any preferential claim.
3. **Reevaluation of Factual Findings:**
– The Court upheld the factual findings of both lower courts, as the conditions for a reversal were not met. There was no grave abuse of discretion, nor manifest errors that warranted a review.
Doctrine:
The Court clarified that:
1. A **Letter of Intent** is generally not binding as a formal contract but serves as a preliminary understanding.
2. **Article 1479** of the Civil Code distinguishes between a unilateral promise (needing distinct consideration) and a bilateral reciprocal contract (where mutual promises can be demanded). The Letter of Intent falls short of either a contract to sell or a conditional contract of sale.
3. Factual determinations by lower courts are typically conclusive, barring exceptions like grave errors or abuse of discretion.
Class Notes:
– **Contract to Sell**: A bilateral contract where the seller retains ownership until the buyer meets conditions, usually full payment.
– **Conditional Contract of Sale**: Ownership transfers upon fulfilling conditions like payment, differing from a contract to sell where explicit transfer actions are needed after condition fulfillment.
– **Letter of Intent**: Expresses parties’ intent to negotiate further, not a binding contract (see Black’s Law Dictionary definition).
– **Article 1479, Civil Code**: Distinguishes promises to buy/sell (reciprocally enforceable) from unilateral promises (binding if supported by distinct consideration).
Historical Background:
This case highlights ongoing issues in property law during the 1990s in the Philippines, especially concerning urban poor rights and land acquisition processes. The ruling underscores the importance of formal contracts over preliminary agreements like Letters of Intent in real property transactions, reflective of the period’s housing policy dynamics.
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