ERNEST BERG, PLAINTIFF AND APPELLEE, VS. MAGDALENA ESTATE, INC., DEFENDANT AND APPELLANT.

This is an action for partition of the property known as
Crystal Arcade situated in the City of Manila.

The complaint avers that
plaintiff and defendant are co-owners of said property, the former being the
owner of one-third interest and the latter of the remaining two-thirds. The
division is asked because plaintiff and defendant are unable to agree upon the
management of the property and upon the partition thereof.

Defendant answered setting up a special defense and a
counterclaim. As a special defense, defendant claims that on September 22, 1943,
it sold to plaintiff one-third of the property in litigation subject to the
express condition that should either vendor or vendee decide to sell his or its
undivided share, the party selling would grant to the other party first an
irrevocable option to purchase the same at the sellers price. It avers that in
January 1946, plaintiff fixed the sum of P200,000 as the price of said share and
offered to sell it to defendant, which offer was accepted, and for the payment
of said price plaintiff gave defendant a period of time which, including the
extensions granted, would expire on May 31, 1947. Defendant claims that, in
spite of its acceptance of the offer, plaintiff refused to accept the payment of
the price, and for this refusal defendant suffered damages in the amount of
P100,000. For these reasons, defendant asks for specific performance.

Plaintiff filed a reply setting forth therein that the
transaction referred to by defendant in its special defense relative to the
property in litigation is not supported by any note or memorandum subscribed by
the parties, as in fact no such note or memorandum has been made evidencing the
transaction, for which reason, plaintiff claims, this transaction falls under
the statute of frauds and cannot form the basis of the special defense invoked
by defendant.

After trial, at which the parties presented testimonial and
documentary evidence, the lower court found for the plaintiff holding that no
agreement has been reached between the parties relative to the purchase and sale
of the property in question, and, recognizing the right of plaintiff to demand
partition under the provisions of Rule 71 of the Rules of Court, it granted the
relief prayed for in the complaint. Hence this appeal.

The pivotal issue to be determined is whether an agreement to
sell has actually been reached between plaintiff and defendant of the share of
the former in the property in litigation for the sum of P200,000, as claimed by
defendant, or whether there have been merely negotiations between them which
never ripened into an agreement, as claimed by plaintiff. And in the
determination of this issue, the preliminary question to be threshed out is the
point raised by plaintiff touching on the evidence submitted by defendant in the
light of the principle underlying the statute of frauds.

It is an undisputed fact that since September 22, 1943,
plaintiff and defendant were co-owners pro indiviso of the property known as
Crystal Arcade in the proportion of one-third interest belonging to the former
and two-thirds to the latter. In the deed of sale executed by the parties on
said date, they stipulated that, should either of them decide to sell his or its
undivided share, the other party will have an irrevocable option to purchase it
at the seller’s price. Then a disagreement ensued between the parties as to what
really occurred concerning the deal.

Thus, while Berg claims that his negotiations with Hemady ended
with an offer by the latter to the former to buy his interest for the sum of
P350,000, Hemady on the other hand claims that Berg offered to sell it to him
for P200.000 subject to the condition that the necessary permit be obtained from
the United States Treasury Department.

It should be stated that, aside from the testimony of Berg and
Hemady, no document has been presented evidencing that alleged agreement to
sell, and so when defendant made attempts to prove, through the testimony of
Hemady, that plaintiff made an offer to sell his interest to defendant for the
sum of P200,000, the attempt met the vigorous opposition of plaintiff invoking
the rule that such agreement can only be established by a contract in writing,
or by a note or memorandum subscribed by the party sought to be charged, as
prescribed by the statute of frauds. It was then that defendant submitted in
evidence exhibits “3” and “4”, contending that these documents, read in
connection with the option to sell embodied in exhibit “1”, constitute a written
proof contemplated by said statute. The crux of this case, therefore, lies in
the determination of whether said exhibits partake of the nature of a note or
memorandum within the purview of said statute as contended by defendant.

It appears that right after the liberation of the Philippines,
both Ernest Berg and K. H. Hemady were accused of collaboration for which reason
the Treasury Department of the United States ordered the freezing of their
properties under the law known as Trading with the Enemy Act. Under the
provisions of this Act, both Berg and Hemady could not sell or dispose of their
properties without first securing the permit required by it, and so to comply
with this requirement, both Berg and Hemady filed separately an application with
said Department for the purchase and sale of the property in litigation. These
applications are the ones marked as exhibits “3” and “4”. In the application
exhibit “3”, Ernest Berg stated that he desires a license in order to sell his
interest in the Crystal Arcade, Escolta, Manila, for P200,000 in cash to
Magdalena Estate, Inc., asking at the same time for permission to place the
amount in an account in his name or in the name of tke company he represents and
to apply the, same from time to time to the payment of the obligations of Red
Star Store, Inc. In the application exhibit “4”, defendant in turn stated,
through its president K. H. Hemady, that it desires a license in order “to use a
portion of the P 400,000 requested as a loan from the National City Bank of New
York, Manila, or from any other local bank in Manila, together with funds to be
collected from old and new sales of his real estate properties, for the purchase
of the one-third (1/3) of the Crystal Arcade property in the Escolta, Manila,
belonging to Mr. Ernest Berg.”

It is now defendant’s position that if the option granted in
exhibit “1” (deed of sale containing the irrevocable option) is considered in
relation to Berg’s application exhibit “3” and defendant’s application exhibit
“4”, these documents constitute a sufficient note or memorandum of the parties’
alleged contract of purchase and sale within the purview of the statute of
frauds. This claim is disputed by Ernest Berg, appellee herein. Which of these
contentions is correct?

Before we proceed, it is important to state at this juncture
some principles governing the meaning, extent and scope of the rule underlying
the statute of frauds relative to the note or memorandum that may serve as proof
to determine the existence of an oral contract or agreement contemplated by it,
and for our purpose, it suffices for us to quote the following authorities:

“No particular form of language or instrument is necessary to
constitute a memorandum or note in writing under the statute of frauds; any
document or writing, formal or informal, written either for the purpose of
furnishing evidence of the contract or for another purpose, which satisfies all
the requirements of the statute as to contents and signature, as discussed
respectively infra secs. 178-200, and infra secs. 201-215, is a sufficient
memorandum or note. A memorandum may be written as well with lead pencil as with
pen and ink. It may also be filled in on a printed form.” (37 C. J. S.,
653-654.)

“The note or memorandum required by the statute of fraud need
not be contained in a single document, nor, when contained in two or more
papers, need each paper be sufficient as to contents and signature to satisfy
the statute. Two or more writings properly connected may be considered together,
matters missing or uncertain in one may be supplied or rendered certain by
another, and their sufficiency will depend on whether, taken together, they meet
the requirements of the statute as to contents and the requirements of the
statute as to signature, as considered respectively infra secs. 179-200 and
secs. 201-215.

“Papers connected.—The rule is frequently applied to two or
more, or a series of, letters or telegrams, or letters and telegrams
sufficiently connected to allow their consideration together; but the rule is
not confined in its application to letters and telegrams; any other documents
can be read together when one refers to the other. Thus, the rule has been
applied so as to allow the consideration together, when properly connected, of a
letter and an order of court, a letter and order for goods, a letter and a
deposition, letters or telegrams and undelivered deeds, wills, correspondence
and related papers, a check and a letter, a receipt and a check, deeds and a
map, a memorandum of agreement and a deed, a memorandum of sale and an abstract
of title, a memorandum of sale and a will, a memorandum of sale and a receipt,
and a contract, deed, and instructions to a depositary in escrow. The number of
papers connected to make out a memorandum is immaterial.” (37 C. J. S.
656-659).

Bearing in mind the foregoing rules, we are of the opinion that
the applications marked exhibits “3” and “4”, whether considered separately or
jointly, satisfy all the requirements of the statute as to contents and
signature and, as such, they constitute sufficient proof to evidence the
agreement in question. And we say so because in both applications all the
requirements of a contract are present, namely, the parties, the price or
consideration, and the subject-matter. In the application exhibit “3”, Ernest
Berg appears as the seller and the Magdalena Estate Inc., as the purchaser, the
former’s interest in the Crystal Arcade as the subject-matter, and the sum of
P200,000 as the consideration. And the application appears signed by Ernest
Berg, the party sought to be charged by the obligation. In other words, it can
clearly be implied that between Ernest Berg and the Magdalena Estate Inc. there
has been a clear agreement to sell said property for P200,000. From the language
of the application no other logical conclusion can be drawn for if there has not
been any previous agreement between the parties it is foolhardy to suppose that
Ernest Berg would take the trouble of filing an application with the Treasury
Department of the United States to secure a license to sell the property. The
claim of Ernest Berg that the negotiations he had with Hemady ended with an
offer on his part to buy his interest for P350,000 cannot be sustained, for if
such is the case it is indeed hard to comprehend why he should state in his
application that he was selling the property for P200,000. The fact that in the
same application Berg also asked for license to place the money in an account in
his name, or in the name of the company he represents, and to apply the same to
the payment of the obligations of said company is of no consequence, nor does it
argue against the purpose of the application, for that request only means that,
should the sale be carried out, he would deposit the money in the name of the
company and later would apply it to the payment of its obligations.

We do not agree with the claim that the application Exhibit “4”
submitted by the Magdalena Estate Inc., does not harmonize with the terms
appearing in the application Exhibit “3”, for, contrary to the claim, those two
applications, considered together, harmonize and complement each other. And we
say so because the application Exhibit “4” states specifically that a portion of
the sum of P400,000 which is desired to be raised as a loan will be used for the
purchase of the one-third interest of Ernest Berg, which portion undoubtedly
refers to the sum of P200,000 mentioned in the application Exhibit “3”. This can
be plainly seen by harmonizing together the two applications. As the rule well
points out, the sufficiency of the two documents will depend on whether, taken
together, they meet the requirements of the statute as to contents and as to
signature, and here both requirements are met because the two documents should
be considered as a whole. Whether, therefore, we consider the two applications
jointly or separately, it is safe to state that they meet the requirements of
the principle underlying the statutes of frauds.

Let us now take up the terms of the agreement to sell,
considering that this has been properly established, to see if defendant has
complied with them and can ask now for specific performance. We have already
seen that plaintiff agreed to sell to defendant his undivided one-third interest
in the property for the sum of P200,000. The next question is: within what
period shall this consideration be paid? Here there are two possible theories:
one under application Exhibit “3” and the other application Exhibit “4”. If we
follow the application Exhibit “3”, it is clear that payment is to be made in
cash, or as soon as the license has been granted to effect the transaction. This
means that it shall be effected immediately upon obtaining the license, or
within a reasonable time thereafter. It is not disputed that this license was
granted, but we find that defendant failed to make good its offer within a
reasonable time for lack of money, it being a fact that defendant was only able
to raise funds for that purpose when it succeeded in selling a portion of its
real estate to a foreign corporation one year thereafter, or on March 14, 1947.
It is true that, in its answer, defendant claims that plaintiff granted to
defend-ant an extension of time up to May 31, 1947, within which to realize the
transaction, but this claim is not supported by any proof. In the opinion of the
Court, this delay has the effect of relieving plaintiff of his obligation under
the law (Articles 1124 and 1451, of the old Civil Code).

Supposing that the term of payment is, as contended by
defendant, until defendant has obtained the loan of P400,000 from the National
City Bank of New York, or after it has obtained funds from other sources
(considering the terms of application Exhibit “4”), what is the legal effect of
this alternative clause? Can it be considered a term within the meaning of our
old Civil Code? Let us analyze it. Under article 1125 of said code, obligations,
for the fulfilment of which a day certain has been fixed, shall be demandable
only when the day arrives. A day certain is understood to be that which must
necessarily arrive, even though it is not known when. In order that an
obligation may be with a term, it is, therefore, necessary that it should
arrive, sooner or later; otherwise, if its arrival is uncertain, the obligation
is conditional. To constitute a term the period must end on a day certain.

Viewing in this light the clause on which defendant relies for
the enforcement of its right to buy the property, it would seem that it is not a
term, but a condition. Considering the first alternative, that is, until
defendant shall have obtained a loan from the National City Bank of New York, it
is clear that the granting of such loan is not definite and cannot be held to
come within the terms “day certain” provided for in the Civil Code, for it may
or it may not happen. As a matter of fact, the loan did not materialize. And if
we consider that the period given was until such time as defendant could raise
money from other sources, we also find it to be indefinite and contingent, and
so it is also a condition and not a term within the meaning of the law. In any
event, it is apparent that the fulfilment of the condition contained in this
second alternative is made to depend upon defendant’s exclusive will, and viewed
in this light, we are of the opinion that plaintiff’s obligation to sell did not
arise, for, under article 1115 of the old Civil Code, “when the fulfilment of
the condition depends upon the exclusive will of the debtor the conditional
obligation shall be void.”

Having reached the foregoing conclusion, we find no legal way
by which plaintiff could be compelled to carry out the terms of his agreement to
sell considering the circumstances surrounding the transaction. To our mind, it
is clear that there was an agreement to sell between the parties under the terms
appearing in the applications Exhibits “3” and “4”. But it also appears that
plaintiff has decided to agree to sell his interest because of his need of money
at the time. He needed it not only for his immediate needs but to pay the
obligations of his own company, the Red Star Stores, Inc. At that time the
values of real estate were fast moving. They were going up in a rapid fashion.
Time element was then of the essence of every transaction, and the parties knew
it. When, therefore, more than a year had transpired since the negotiations
started and defendant failed to come across, plaintiff changed his mind. The
interest of defendant to purchase the share of plaintiff in the property is
understandable, not only because of the advisability to consolidate its
ownership in said property, but because it was a handsome transaction with a
brighter prospect in the future. But it is to be regretted that both Berg and
Hemady who were both experienced businessmen did not put the terms of their
agreement clearly in writing. Had they done so perhaps this case would have been
avoided.

Finding no error in the decision appealed from, the same is
hereby affirmed, with costs against appellant.

Pablo, Padilla, and Montemayor, JJ., concur.

BENGZON, J.:

I concur in the result. I believe no agreement has been duly
proved.

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LABRADOR, J.:

I concur. There might be some objection to
considering Exhibit 3 (application of Ernest Berg with the United States
Treasury Department to sell his interest in the Crystal Arcade Building for
P200,000 cash) and Exhibit 4 (application of the Magdalena Estate, Inc., with
the United States Treasury Department for a portion of the P200,000 requested as
loan from the National City Bank of New York to purchase one-third of the
Crystal Arcade Building belonging to Ernest Berg) as notes or memoranda of the
contract entered into between the parties for the sale of the property, within
the meaning of the statute of frauds. In some jurisdictions it is held that in
order to comply with the requirements of the statute of frauds a letter must be
sent to the contracting party or his agent (27 C. J. S., sec. 386, p. 302). Such
a rule is the one adopted in the State of New Jersey. But in the Code of Civil
Procedure of the State of California (sections 1973-1974), from which our
original statute of frauds was taken (section 335 of Act No. 190), the rule is
that a letter or telegram of the party sought to be charged to a third person
may be considered as a sufficient memorandum within the meaning of the statute.
Ibid.; Moss vs. Atkinson, 44 Cal. 3). This doctrine is also followed in Kansas,
Missouri, New York, Iowa, North Carolina, New England, and Ontario. (See
footnotes to 27 C.J.S. 302.) In a case decided in Kansas it was expressly held:

Nor is it necessary, in the ease of a memorandum in the form of
a letter, that it should he addressed to the vendee. Letters to a third person
are sufficient memoranda. Browne, St. Frauds (5th Ed.) Sec. 354a. “The principle
upon which these decisions are based we understand to be that the statute was
not intended to apply to written contracts, out to the information of oral
contracts when properly evidenced, as by the admission in writing of the party
to be charged. If the party sought to be charged has in writing admitted the
contract, this is sufficient, as we understand, to take the case out of the
statute, no matter to whom the writing may have been addressed.” Warfield v.
Cranberry Co., 33 Iowa, 312, 19 N.W. 224. (Miller v. Kansas City, Ft. S. &
M. K. Co., et al., 58 Kan. 189, 48 P. 853, 854)

As section 21 of Rule 123, Rules of Court, our statute of
frauds when the communications to the United States Treasury Department were
sent by the parties to this case, is a rule of evidence (as to the character of
the new provision [article 1403] of the New Civil Code, quaere), and the written
memorandum is not the contract itself, but merely evidence thereof, it is not
necessary for the admission as evidence of any note or memorandum signed by a
party thereto, that it be signed by, or addressed to, the other also.

Defendant-appellant’s counterclaim to compel plaintiffs
appellee to sell the property must, however, be denied, for the reason that the
conditions under which the contract to sell were to be carried out did not
materialize within a reasonable time after it was entered into, and both
parties, upon failure of the contingencies relied upon, impliedly withdrew
therefrom. The agreement was that the sale shall be carried out when the vendor
will get the necessary permit to sell from the United States Treasury
Department, and the Magdalena Estate, Inc., will get the loan from the National
City Bank of New York with which to pay the price. These conditions are
suspensive. The sale was to be carried out only if these should materialize.

En
el segundo parrafo del articulo 1.113 y en el 1.114 inicia el Codigo la
clasificacion mas importante de las eondiciones en suspensivas y resolutorias,
desenvolviendola luego en los articulos 1.122 y siguientes, al determinar los
efectos, consecuencia del complimiento de unas y otras. Su diferencia es bien
clara; unas y otraa influyen en la existencia de la obligacion, pero por modos
diametralmente opuestos: si la condicion suspensiva se cumple, la obligacion
surge; si se cumple la resolutoria, la obligacion se extingue; si la una no se
realiza, el vinculo de derecho no Hega a aparecer; si la otra no se verifica, la
relacion de derecho ae consolida; mientras dura la duda, la obligaeion, en el
primer caso, no aparece, pero su existeneia es una esperanza; y en el segundo,
surte sus efectos, pero pesa sobre ella una amenaza de caducidad. (8 Manresa,
122.)

That they were suspensive conditions may be inferred from their
conduct. The defendant-appellant’s manager did not demand that the sale be
carried out until after the’ filing of the complaint in the month of April,
1947, or fully one year after the contract to sell had been agreed upon. Berg,
the vendor, also raised the funds he needed for his business by selling a
property of his in Quezon City to the vendee itself. (Deposition of Ernest Berg,
Exhibit A, p. 4.) During all the time that they were in continuous
correspondence regarding the administration of the property, never was a word
said about carrying out the sale. All these show that they actually desisted
from carrying out the terms of the contract to sell.

Paras, C. J., and Jugo, J., concur.