STARBRIGHT SALES ENTERPRISES, INC., PETITIONER, VS. PHILIPPINE REALTY CORPORATION

STARBRIGHT SALES ENTERPRISES, INC., PETITIONER, VS. PHILIPPINE REALTY CORPORATION, MSGR. DOMINGO A. CIRILOS, TROPICANA PROPERTIES AND DEVELOPMENT CORPORATION AND STANDARD REALTY CORPORATION, RESPONDENTS.

[G.R. No. 177936, January 18, 2012]

ABAD, J.:

Facts:

On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three contiguous parcels of land in Parañaque that The Holy See and Philippine Realty Corporation (PRC) owned for P1,240.00 per square meter. Licup accepted the responsibility for removing the illegal settlers on the land and enclosed a check for P100,000.00 to "close the transaction.” He undertook to pay the balance of the purchase price upon presentation of the title for transfer and once the property has been cleared of its occupants. Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conforme portion of the letter and accepted the check. But the check could not be encashed due to Licup's stop-order payment.  Licup wrote Msgr. Cirilos on April 26, 1988, requesting that the titles to the land be instead transferred to petitioner Starbright Sales Enterprises, Inc. (SSE).  He enclosed a new check for the same amount. SSE's representatives, Mr. and Mrs. Cu, did not sign the letter.

On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on the property and, should it decide not to do this, Msgr. Cirilos would return to it the P100,000.00 that he received.  On January 24, 1989 SSE replied with an "updated proposal.” It would be willing to comply with Msgr. Cirilos' condition provided the purchase price is lowered to P1,150.00 per square meter.

On January 26, 1989 Msgr. Cirilos wrote back, rejecting the "updated proposal." He said that other buyers were willing to acquire the property on an "as is, where is" basis at P1,400.00 per square meter.  He gave SSE seven days within which to buy the property at P1,400.00 per square meter, otherwise, Msgr. Cirilos would take it that SSE has lost interest in the same. He enclosed a check for P100,000.00 in his letter as refund of what he earlier received. The property was eventually sold to Tropicana Properties and then sold Standard Realty.

Issue:

Whether or not there is a perfected contract existing between SSE and land owners, represented by Msgr. Cirilos.

Ruling:

Three elements are needed to create a perfected contract: 1) the consent of the contracting parties; (2) an object certain which is the subject matter of the contract; and (3) the cause of the obligation which is established. Under the law on sales, a contract of sale is perfected when the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter agrees. From that moment, the parties may demand reciprocal performance.

The Court believes that the letter between Licup and Msgr. Cirilos, the representative of the property's owners, constituted a perfected contract.  However, when Licup ordered to stop his deposit and instead transferred the property to SSE, a novation took place. Novation serves two functions - one is to extinguish an existing obligation, the other to substitute a new one in its place - requiring concurrence of four requisites: 1) a previous valid obligation; 2) an agreement of all parties concerned to a new contract; 3) the extinguishment of the old obligation; and 4) the birth of a valid new obligation. In the given case, it was noted that the signatures present during Licup and Msgr. Cirilos agreement are not present in the letter of agreement between SSE and Msgr. Cirilos.  SSE cannot revert to the original terms stated in Licup's letter to Msgr. Cirilos since it was not privy to such contract.  The parties to it were Licup and Msgr. Cirilos.  Under the principle of relativity of contracts, contracts can only bind the parties who entered into it.