ELIAS L. PENACO, PLAINTIFF-APPELLEE, VS. ZOILO H. RUAYA AND FELICITAS E. RUAYA, DEFENDANTS-APPELLANTS.

Penaco versus Ruaya

The Case

This is an appeal by the spouses Zoilo Ruaya and Felicitas Ruaya from a judgment of the Court of First Instance of Misamis Occidental ordering them to convey their rights over a parcel of public land to Elias Penaco. Penaco sued for specific performance, asking the Court to compel the Ruaya spouses to honor a promise they made in a pacto de retro sale of their residential building — the promise to relinquish, upon consolidation of title in the buyer, all their rights and interests as public land claimants over the lot on which the building stood. The case matters because it teaches how the Court treats a single contract that bundles a sale with a repurchase right and a collateral promise over public land, and how it applies the rules on consideration, on the object of contracts, and on the sufficiency of a description of land.

Procedural History

The vendee a retro, Pershing Tan Queto, first went to the Court of First Instance of Misamis Occidental in an earlier action for consolidation of title, and on the thirtieth of September, nineteen hundred sixty, that court declared the title to the building consolidated in him. He later assigned his rights to Elias Penaco. When the Ruaya spouses refused to relinquish their rights over the lot, Penaco filed this action for specific performance on the third of November, nineteen hundred sixty-five, again in the Court of First Instance of Misamis Occidental. On the twentieth of June, nineteen hundred sixty-seven, the trial court rendered judgment in favor of Penaco, ordering the Ruaya spouses to convey their rights over the portion of the lot on which the building stood, and to pay two hundred pesos as attorney's fees, plus costs. The Ruaya spouses appealed directly to the Supreme Court, which decided the case on the fourteenth of December, nineteen hundred eighty-one.

Facts

On the fourteenth of January, nineteen hundred fifty-seven, the Ruaya spouses executed a single document titled a pacto de retro sale of residential building with guaranty to relinquish rights as public land applicant on the lot on which constructed. For one thousand pesos, they sold to Pershing Tan Queto a two-story residential building standing on public land along the road to the wharf in Ozamis City, land they claimed as actual claimant-applicant before the Bureau of Lands under a decision of the Director of Lands dated the eighth of June, nineteen hundred fifty-four. The contract reserved to the sellers the right to repurchase within one year after the lapse of one year from its execution. It provided that upon failure to repurchase, title to the building would pass to the buyer. And it bound the sellers, in the event of consolidation of title in the buyer, to relinquish and effect complete legal transfer of all their rights, interests and participation in the lot as public land claimants.

The sellers failed to repurchase. The buyer obtained a judgment consolidating title to the building in himself. He then assigned his rights to Elias Penaco for two thousand eight hundred pesos. Penaco demanded that the Ruaya spouses relinquish their rights over the lot, and they refused.

Penaco sued for specific performance. The Ruaya spouses answered that the promise to relinquish their rights over the lot was void and unenforceable for want of consideration, since no price was mentioned for it. They also argued that the consideration of one thousand pesos covered only the house, that the land was public land they could not sell, that the price was inadequate, and that the lot had not been identified.

Issues

• Whether or not the promise to relinquish the sellers' rights over the lot is void for want of consideration, it being part of one and the same contract of sale.
• Whether or not the sellers may validly transfer their rights as public land claimants over land of the public domain.
• Whether or not the inadequacy of the price shows that the consideration was for the building alone.
• Whether or not the parcel of land sought to be transferred has been sufficiently identified.

Applicable Provisions

Article 1350 of the Civil Code provides:

In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other.

This is the Court's basis for holding that the promise of one party is the consideration for the promise of the other in a reciprocal contract.

Article 1354 of the Civil Code provides:

Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.

This placed on the Ruaya spouses the burden of disproving consideration, a burden the Court found they did not discharge.

Ruling

On the first issue, the Court held that the promise is not void for want of consideration. The premise of the appellants was false: there were not two contracts, but only one, a sale of the building for one thousand pesos with three conditions — the right to repurchase, the passing of title upon failure to repurchase, and the transfer of the sellers' rights over the lot upon consolidation of title. In reciprocal contracts, the obligation of each party is the consideration for that of the other, as Article 1350 provides. And under Article 1354, consideration is presumed to exist and to be lawful unless the debtor proves the contrary, which the appellants failed to do.

On the second issue, the Court held that what was transferred was not ownership of the land, which the sellers could not sell, but their rights, interests and participation as public land claimants, and these rights could be waived, transferred or alienated. Whether the buyer is qualified to acquire land of the public domain is a question for the Director of Lands, who has executive control over the concession and disposition of public lands, and it should be raised in the administrative proceedings.

On the third issue, the Court held that the inadequacy of the price does not prove that the one thousand pesos was for the house alone. The buyer could not have bought the house alone without a fixed arrangement over the lot, or he could be ejected at the will of the sellers. The Court quoted with approval the rule that a valuable consideration, however small or nominal, if given or stipulated in good faith, is, in the absence of fraud, sufficient.

On the fourth issue, the Court held that the land is sufficiently identified. The contract described it as public land along the road to the wharf in Ozamis City, claimed by the vendors as actual claimant-applicant under a decision of the Bureau of Lands, referring to B.L. Claim Number 181, portion of Lot 373 of the Misamis Cadastre, as per the decision of the Director of Lands dated the eighth of June, nineteen hundred fifty-four, made an integral part of the document. That description is sufficient, since the decision referred to would pinpoint the lot in metes and bounds.

Doctrine

A single contract may bundle a sale, a right of repurchase, and a collateral promise, and the whole is governed by the rules on onerous contracts. In such reciprocal contracts, the promise of each party is the consideration for the promise of the other, as Article 1350 states, and consideration is presumed to exist and to be lawful unless the debtor proves the contrary, as Article 1354 states. A valuable consideration, however small or nominal, if given or stipulated in good faith, is sufficient in the absence of fraud. A public land claimant may transfer his rights, interests and participation as claimant, even though he cannot sell the land itself, and the question of the transferee's qualification to acquire public land belongs to the Director of Lands in administrative proceedings. A description of land by reference to a document made an integral part of the contract, such as a decision of the Director of Lands delineating the lot, is sufficient identification.

Disposition

The Supreme Court affirmed the judgment of the trial court, with costs against the Ruaya spouses, so that Penaco won and the Ruaya spouses were ordered to convey their rights over the lot to him.

Remember This

Memorize this line: in reciprocal contracts, the obligation or promise of each party is the consideration for that of the other, and consideration is presumed to exist unless the debtor proves the contrary. Examiners use this case on the presumption of consideration, on the transfer of rights of a public land claimant as distinct from the land itself, and on the sufficiency of a description of land by reference to an annexed document.