UNITED MUSLIM AND CHRISTIAN URBAN POOR ASSOCIATION, INC. REPRESENTED BY ITS PRESIDENT, MANUEL V. BUEN, PETITIONER, VS.BRYC-V DEVELOPMENT CORPORATION REPRESENTED BY ITS PRESIDENT…

United Muslim and Christian Urban Poor Association versus BRYC-V Development Corporation

The Case

This is a petition for review on certiorari brought by the United Muslim and Christian Urban Poor Association, an organization of squatter-occupants, against Sea Foods Corporation and BRYC-V Development Corporation. The Association sought to annul the sale of a parcel of land by Sea Foods Corporation to BRYC-V Development Corporation, claiming that a Letter of Intent to Sell and a Letter of Intent to Buy gave it a prior, better, and preferred right to purchase that land. The case matters because it fixes the legal character of a letter of intent: whether such a document is a binding bilateral contract to sell and to buy under the first paragraph of Article 1479 of the Civil Code, or a mere declaration of intention that creates no obligation at all. It is a staple in examinations on contracts of sale, contracts to sell, options, and the demandability of promises to buy and sell.

Procedural History

The Association filed a complaint with the Regional Trial Court of Zamboanga City, Branch 16, against Sea Foods Corporation and BRYC-V Development Corporation, seeking to annul the sale of the lot and the cancellation of the transfer certificate of title issued to BRYC-V. After trial, the Regional Trial Court dismissed the complaint. It held that the Letter of Intent was executed merely to facilitate the approval of the Association's loan, that it was simply a declaration of intention to sell and not a promise to sell, and that it was neither a promise, nor an option contract, nor an offer under Article 1319 of the Civil Code, nor a bilateral contract to sell and to buy. The Association appealed to the Court of Appeals, which affirmed the decision of the trial court in its entirety. The Association then came to the Supreme Court by petition for review on certiorari, raising a single issue: whether the Letter of Intent to Sell and Letter of Intent to Buy constitute a bilateral reciprocal contract within the meaning of the first paragraph of Article 1479 of the Civil Code.

Facts

Sea Foods Corporation owned a large parcel of land in Zamboanga City, occupied by members of the Association. In 1991 the Association, through its president, opened negotiations to buy the property, intending to pay with the proceeds of a loan it hoped to obtain from the National Home Mortgage Finance Corporation. The parties then executed a Letter of Intent to Sell and a Letter of Intent to Purchase, stating Sea Foods Corporation's intention to sell at 105 pesos per square meter, the Association's intention to buy and to endeavor to raise the funds, and that the absolute deed of sale would be executed upon full payment of the purchase price.

The intended sale did not push through because the Association could not secure the loan, as not all its members occupying the land were willing to join the undertaking. The Association then proposed that the land be subdivided so that occupants could buy smaller portions. The property was eventually divided into three lots. The Association purchased the largest portion, another portion was donated to the local government as a road right of way, but the Association failed to acquire the third portion for lack of funds. Sea Foods Corporation gave it another three months to buy that portion, but the period lapsed without the sale being consummated because the Association still failed to obtain the loan.

Sea Foods Corporation then sold that third portion to BRYC-V Development Corporation. About a year later, the Association filed its complaint to annul the sale, invoking its alleged prior and preferred right under the Letter of Intent. BRYC-V countered that the complaint stated no cause of action, since the Association had itself sent BRYC-V a letter of intent asking it to re-sell the lot, thereby recognizing BRYC-V's ownership. Sea Foods Corporation answered that the Letter of Intent was not a valid and subsisting contract of sale, but was drawn merely to accommodate the Association and to enable it to comply with the loan documentation requirements, and that it was subject to the condition of payment of the acquisition price, which the Association failed to meet.

Issues

• Whether or not the Letter of Intent to Sell and Letter of Intent to Buy constitute a bilateral reciprocal contract within the meaning of the first paragraph of Article 1479 of the Civil Code.
• Whether or not the Letter of Intent is a contract to sell or a conditional contract of sale that bound Sea Foods Corporation to sell the lot exclusively to the Association.
• Whether or not the sale of the lot to BRYC-V Development Corporation may be annulled on the ground of the Association's alleged prior and preferred right.

Applicable Provisions

Article 1479 of the Civil Code provides:

Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

This is the provision the Association invokes, and the Court uses its first paragraph to define the bilateral contract to sell that the Letter of Intent allegedly created.

Article 1458 of the Civil Code provides:

Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

This provision supplies the contrast between a conditional contract of sale and a contract to sell, a distinction on which the Court's analysis of the Letter of Intent turns.

Ruling

On the first issue, the Court held that the Letter of Intent is not a bilateral reciprocal contract under the first paragraph of Article 1479. That paragraph contemplates the bilateral relationship of a contract to sell, which the Court, quoting its earlier ruling, described in this way:

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

The Court found that nowhere in the Letter of Intent did Sea Foods Corporation relinquish its title subject only to complete payment, nor did it bind itself to sell the property exclusively to the Association. The document was, as the trial court put it, a mere manifestation of intention to sell and to buy, obvious from its reference to the execution of an absolute deed of sale upon full payment. The Court also relied on the settled rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are conclusive between the parties, and it found none of the recognized exceptions that would justify a review.

On the second issue, the Court held that the Letter of Intent is neither a contract to sell nor a conditional contract of sale. It quoted with favor the trial court's reasoning that a letter of intent is a brief memorandum of a preliminary understanding, that an intention is a mere idea, goal, or plan which cannot give rise to an obligation to give, to do, or not to do, and that the document was not an option contract because it was not supported by a consideration distinct from the price and granted no exclusive right to buy within a fixed period. The Court stressed that the Association had about three years and eight months to raise the funds, and had in fact raised them for the larger portion, so its failure to acquire the disputed portion could not be blamed on Sea Foods Corporation.

On the third issue, the Court held that the sale to BRYC-V Development Corporation could not be annulled, there being no prior and preferred right in the Association to enforce. The petition was therefore denied.

Doctrine

A letter of intent is a mere written preliminary understanding of parties who intend to enter into a contract. It is not a contract, because it does not bind one party with respect to the other to give something or to render some service. A declaration of intention is a mere idea, goal, or plan, and cannot give rise to an obligation to give, to do, or not to do.

A bilateral contract to sell under the first paragraph of Article 1479 of the Civil Code requires a promise to buy and sell a determinate thing for a price certain, which is reciprocally demandable. The prospective seller must bind himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition of full payment, while expressly reserving ownership until then. A document that merely declares an intention to sell, without such a binding promise, is neither a contract to sell nor a conditional contract of sale.

An accepted unilateral promise to buy or to sell, under the second paragraph of Article 1479, binds the promissor only if supported by a consideration distinct from the price. Absent such separate consideration, and absent an exclusive right to buy within a fixed period, the document is not a binding option contract.

Factual findings of the trial court, especially when affirmed by the appellate court, are conclusive between the parties and are not reviewed by the Supreme Court except upon a showing of highly meritorious circumstances.

Disposition

The petition was denied, and the decisions of the Court of Appeals and the Regional Trial Court were affirmed, with costs against the Association.

Remember This

The single line worth memorizing is that a letter of intent is a mere declaration of intention, not a promise to sell, and therefore creates no demandable obligation. Examiners use this case to test the distinction between a contract to sell, a conditional contract of sale, an option contract, and a mere letter of intent under Articles 1458 and 1479 of the Civil Code.