49 Phil.

857

[ G.R. No. 25400, January 14, 1927 ]

THE PHILIPPINE NATIONAL BANK, PLAINTIFF AND
APPELLEE, VS. THE PHILIPPINE VEGETABLE OIL CO., INC.,
DEFENDANT AND APPELLEE. PHIL. C. WHITAKER,
INTERVENOR AND APPELLANT.

DECISION

MALCOLM, J.:

This appeal involves the legal right of the Philippine National Bank to obtain a
judgment against the Philippine Vegetable Oil Co., Inc., for P15,812,454, and to
foreclose a mortgage on the property of the Philippine Vegetable Oil Co., Inc., for
P17,000,000, and the legal right of Phil. C. Whitaker as intervenor to obtain a
judgment declaring the mortgage which the Philippine National Bank seeks to
foreclose to be without force and effect, requiring an accounting from
the Philippine NationalBank of the sales of the property and assets of
the Philippine Vegetable Oil Co., Inc., and ordering the Philippine Vegetable Oil Co.,
Inc., and the Philippine National Bank to pay him the sum of P4,424,418.37.

In 1920, the Philippine Vegetable Oil Co., Inc., which will hereafter be called
the Vegetable Oil Company, found itself in financial straits. It was in debt to the
extent of approximately P30,000,000. The Philippine National Bank was the largest
creditor. The Vegetable Oil Company owed the bank P17,000,000. Over
P13,000,000 were due the other creditors. The Philippine National Bank was
secured principally by a real and chattel mortgage for P3,500,000. On January 10,
1921, the Vegetable Oil Company executed another chattel mortgage in favor of
the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of
sums not to exceed P4,000,000.

This was the precarious situation which in the latter part of 1920 and the early part
of 1921 confronted the Vegetable Oil Company, its General Manager Phil. C.
Whitaker, the Philippine National Bank, and the various creditors of
the Vegetable Oil Company, Bankruptcy was imminent. On January 1, 1921, Mr.
Whitaker made his first offer to pledge certain private properties to secure the
creditors of the Oil Company (Intervenor's Exhibit 1). In February of the same year,
a creditors' meeting was held. At the instance of Mr. Whitaker but inspired to such
action by the bank, a receiver for the Vegetable Oil Company was appointed by the
Court of First Instance of Manila on March 11, 1921. (Case No. 19644, Court of
First Instance of Manila.)
During the period when a receiver was in control of the property of
the Vegetable Oil Company, a number of events occurred. The first was the
agreement perfected by the Vegetable Oil Company, Mr. Whitaker, and some of the
creditors of the Oil Company on June 27, 1921, whereby the creditors transferred
to Mr. Whitaker a part of their claims against the Vegetable Oil Company in
consideration of the execution by Mr. Whitaker of a trust deed of his
property. The Philippine National Bank was not a direct party to the agreement
although the officials of the bank had full knowledge of its accomplishment and the
general manager of the bank placed his O. K. at the end of the final draft.
(Intervenor's Exhibit 10.) The next move of the bank was to obtain a new mortgage
from the Vegetable Oil Company on February 20, 1922. Shortly thereafter, on
February 28, 1922, the receivership for the Vegetable Oil Company was terminated.
The bank suspended the operation of the Vegetable Oil Company in May, 1922,
and. definitely closed the Oil Company's plant on August 14, 1922.

Out of the foregoing facts which are not in dispute and others which are in dispute,
arose the action of the Philippine National Bank of May 7, 1924, to foreclose its
mortgage on the property of the Vegetable Oil Company. The Vegetable Oil
Company on its part countered with certain special defenses which need not be
described and with the interposition of a counterclaim for P6,000,000. Phil. C.
Whitaker presented a complaint in intervention. The judgment rendered was in
favor of the plaintiff and against the defendant which was ordered to pay the sum
of P15,787,454.54, representing the liquidation between the plaintiff and the
defendant, with legal interest beginning with May 8, 1923, together with P25,000
attorney's fees, and costs, with the addition of the usual order to foreclose the
mortgage. The counterclaim of the defendant and the complaint in intervention
were dismissed.

The trial judge in his decision announced and answered three questions, viz: (1)
Whether the execution of the mortgage, Exhibit A of the plaintiff, was the free act
of the defendant; (2) whether this mortgage was null and without force because at
the time of its execution all the property of the defendant was under the control of
a receiver appointed by the court and neither the approval of the receiver nor of the
court had been obtained; and (3) whether the plaintiff had failed to comply with the
contract, that it was alleged to have celebrated with the defendant and the
intervenor, that it would furnish funds to the defendant so that it could continue
operating its factory. Much the same analysis of the issues is made by the
intervenor as appellant. The first error, in relation with the sixth error of the
assignment of errors, concerns the holding that the mortgage, Exhibit A, has been
legally and validly executed by the Philippine Vegetable Oil Co., Inc. The second,
third, fourth, and fifth errors, in relation with the sixth error of the assignment of
errors, concern the holding that the Philippine National Bank had not bound itself to
finance the operation of the Philippine Vegetable Oil Co., Inc. In this later
connection, the main point at issue between the Philippine National Bank and Phil.
C. Whitaker as disclosed by the amended answer of the Philippine National Bank to
the complaint in intervention, and the opening sentence of the memorandum for
intervenor-appellant filed in this court, is whether the Philippine National Bank ever
made any contract binding the bank to provide the necessary operating capital to
the Philippine Vegetable Oil Co., Inc., and whether Mr. Whitaker has established his
right to recover damages from the bank by reason of the latter's alleged refusal to
finance the operation of the Philippine Vegetable Oil Co., Inc. It results, therefore,
in the appeal dividing into two main subjects, the first, the validity of
the Philippine" National Bank-Philippine Vegetable Oil Co., Inc., mortgage of
February 20, 1922, and the second, the alleged agreement of
the Philippine National Bank to finance the Philippine Vegetable Oil Co., Inc. These
two topics we propose to discuss separately and in order. Parenthetically, it may
be said that our mode of approach will be to sweep aside technicalities and to
resolve in a broad and liberal manner the various perplexing questions which are
before the court.

I. Validity of the Philippine National Bank—Philippine Vegetable Oil Co., Inc.,

mortgage of February 20,1922.

At the outset, the appellee challenges the right of Phil. C. Whitaker as intervenor to
ask that the mortgage contract executed by the Vegetable Oil Company be declared
null and void. Appellee is right as to the premises. The Vegetable Oil Company is
the defendant. The corporation has not appealed. At the same time, it is evident
that Phil. C. Whitaker was one of the largest individual stockholders of
the Vegetable Oil Company, and was until the inauguration of the receivership,
exercising control over and dictating the policy of that company. Out of twentyeight
thousand shares of the Vegetable Oil Company, Mr. Whitaker was the owner of
5,893 fully paid shares of the par value of P100 each. He it was who asked for the
appointment of the receiver. He it was who was the leading figure in the
negotiations between the Vegetable Oil Company, the Philippine National Bank, and
the other creditors. He it was who pledged his own property to the extent of over
P4,000,000 in an endeavor to assist in the rehabilitation of the Vegetable Oil
Company. He is injuriously affected by the mortgage. In truth, Mr. Whitaker is
more vitally interested in the outcome of this case than is the Vegetable Oil
Company. Conceivably if the mortgage had been the free act of the Vegetable Oil
Company, it could not be heard to allege its own fraud, and only a creditor could
take advantage of the fraud to intervene to avoid the conveyance.

We find no merit in appellee's objection and pass on to consider the main question
on its merits.

The mortgage, Exhibit A, was executed on February 20, 1922, by

"Philippine Vegetable Oil Co., Inc., By E. G. Abry, Secretary-Treasurer"
"Philippine National Bank By E. W. Wilson, General Manager." E. G. Abry, according
to his testimony, was employed as secretary-treasurer of the Vegetable Oil
Company after a conference with Mr. Wilson and continued in this position during
the period when the Vegetable Oil Company was under the control either of a
receiver or of the bank. The other signature to the instrument was that of E. W.
Wilson, General Manager of the Philippine National Bank.

At this time, E. W. Wilson and Miguel Cuaderno, a Director of

the Philippine National Bank, were serving as Directors of the Vegetable Oil
Company. Messrs. Wilson and Cuaderno were elected to these places after Mr.
Wilson had on July 26, 1921, in a letter to Mr. Whitaker relative to the
reorganization of the Vegetable Oil Company, suggested the resignation of two
members of the Board of Directors so that the bank might "have rather a close
working relationship with the Philippine Vegetable Oil Co." (Intervenor's Exhibit
4). The resolution of the Board of Directors of September 2, 1921, naming Messrs.
Wilson and Cuaderno "to represent the Philippine National Bank in the Board of
Directors of the Philippine Vegetable Oil Co. as members thereof" did so with the
understanding "that neither one of them has any interest other than that of
the bank's in the Philippine Vegetable Oil Co., and that in accepting these
directorships they are doing it solely for the bank." According to the testimony of
Major Randall, Mr. Wilson became President of the Vegetable Oil Company on
September 12, 1921.

It has been said that the mortgage was executed on February 20, 1922. That is
undeniable. The allegation of the plaintiff's complaint is "That the defendant, on the
20th day of February, 1922, duly executed to the plaintiff a mortgage." The
mortgage in question recites: "THIS MORTGAGE, executed at the City of
Manila, Philippine Islands, this twentieth day of February, nineteen hundred and
twenty-two." However, the mortgage was not ratified before a notary public until
March 8, 1922, and was not recorded in the registry of property until March 21,
1922.

To add one more date, it will be recalled that the receivership ended on February
28, 1922. In. other words, as partially interpretative of the situation, the mortgage
was executed by the Philippine National Bank, through its General Manager, and
another corporation before the termination of the receivership of the said
corporation, but was not acknowledged or recorded until after the termination of
the receivership.

In the complaint of Phil. C. Whitaker filed in the Court of First Instance of Manila in
which it was prayed that a receiver be appointed to take charge of
the Philippine Vegetable Oil Co., Inc., it was alleged "that the largest individual
creditor of said corporation is the Philippine National Bank, the indebtedness to
which amounts to approximately P16,000,000, a portion of which indebtedness is
secured by mortgage on the major part of the assets of the corporation." The order
of the court appointing a receiver contained a similar recital.
The Philippine National Bank held the mortgage mentioned, and possibly two others
not mentioned, when the receivership proceedings were initiated.

It must be evident to all that the Philippine National Bank could legally secure no
new mortgage by the accomplishment of documents between its officials and the
officials of the Vegetable Oil Company while the property of the latter company was
in custodia legis. The Vegetable Oil Company was then inhibited absolutely from
giving a mortgage on its property. The receiver was not a party to the mortgage.
The court had not authorized the receiver to consent to the execution of a new
mortgage. Whether the court could have done so is doubtful, but that it would have
thus consented is hardly debatable, considering that it would desire to protect the
rights of all the creditors and not the rights of one particular creditor. The legal
conclusion is axiomatic. (Code of Civil Procedure, secs. 173 et seq., Compañia
General de Tabacos vs. Gauzon and Pomar [1911], 20 Phil., 261.)

To all this the appellee as well as the trial court have answered that while it is true
that the document was executed on February 20, 1922, at a time when the
properties of the mortgagor were under receivership, the mortgage was not
acknowledged before a notary public until March 8, 1922, after the, court had
determined that the necessity for a receiver no longer existed. But the additional
fact remains that while the mortgage could not have been executed without the
dissolution of the receivership, such dissolution was apparently secured through
representations made to the court by counsel for the bank that the bank would
continue to finance the operations of the Vegetable Oil Company (See testimony of
Judge Simplicio del Rosario). Instead of so doing, the bank within less than two
months after the mortgage was recorded, withdrew its support from
the Vegetable Oil Company, and in effect closed its establishment. Also it must not
be forgotten that the hands of other creditors were tied pursuant to the creditors'
agreement of June 27, 1921.

To place emphasis on the outstanding facts, it must be repeated that the mortgage
was executed while a receiver was in charge of the Vegetable Oil Company. A
mortgage accomplished at such a time by the corporation under receivership and a
creditor would be a nullity. The mortgage was definitely perfected subsequent to
the lifting of the receivership pursuant to implied promises that the bank would
continue to operate the Vegetable Oil Company. It was then accomplished when
the Philippine National Bank was a dominating influence in the affairs of
the Vegetable Oil Company. On the one hand was the Philippine National Bank in
person. On the other hand was the Philippine National Bank by proxy. Under such
circumstances, it would be unconscionable to allow the bank, after the hands of the
other creditors were tied, virtually to appropriate to itself all the property of
the Vegetable Oil Company.

Whether we consider the action taken as not expressing the free will of
the Vegetable Oil Company, or as disclosing undue influence on the part of
the Philippine National Bank in procuring the mortgage, or as constituting deceit
under the civil law, or whether we go still further and classify the facts as
constructive fraud, the result is the same. The mortgage is clearly voidable.

The setting aside of the mortgage of February 20, 1922, will not necessarily result
in the Philippine National Bank being left without security. It is our understanding
that before the receivership was thought of, the bank was the holder of three
mortgages on the property of the Vegetable Oil Company, the first dated April 11,
1919, for an uncertain amount; the second, dated November 18, 1920, for
P3,500,000; and the third, dated January 10, 1921, for P4,000,000. These
mortgages remain in effect and may be foreclosed.

Addressing ourselves directly to the first two questions discussed in the decision of
the trial court and to the first and sixth errors assigned by the intervenor as
appellant, we rule that the Philippine National Bank-Philippine Vegetable Co., Inc.,
mortgage of February 20, 1922, has not been legally executed by
the Philippine Vegetable Oil Co., Inc.

II. Alleged agreement of the Philippine National Bank to finance

the Philippine Vegetable Oil Co., Inc.

Before it need be decided if the intervenor has a right to recover damages from
either the plaintiff or the defendant because of the plaintiff's refusal to finance the
operations of the defendant, it must be determined if
the Philippine National Bank ever entered into any valid agreement by which it
bound itself to provide the necessary operating capital of
the Philippine Vegetable Oil Co., Inc. The question presents both legal and factual
aspects. The legal inquiry relates to the applicability or non-applicability of the
Statute of Frauds as found in section 335 of our Code of Civil Procedure. The
question of fact goes on the assumption that the oral evidence can be received
without violating the Statute of Frauds and then, of course, comes down to the
weighing of the evidence.

The broad view is that the Statute of Frauds applies only to agreements not to be
performed on either side within a year from the making thereof. Agreements to be
fully performed on one side within the year are taken out of the operation of the
statute. As intervenor's theory proceeds on the assumption that Mr. Whitaker has
entirely performed his part of the agreement, equity would argue that all evidence
be admitted to prove the alleged agreement. Surely since the Statute of Frauds
was enacted for the purpose of preventing frauds, it should not be made the
instrument to further them.

As preliminary to a presentation of the evidence, it is well to have an understanding

of the applicable law. The Charter of the Philippine National Bank, Act No. 2612,
section 20, as amended by Act No. 2938, provides that "The General Manager of
the Bank, shall, among others, have the following powers and
duties: * * * (b) To make, with the advice and consent of the board of directors,
all contracts on behalf of the said bank and to enter into all necessary obligations
by this Act required or permitted." Predicated on our general liberal point of view,
we feel free to take into consideration the applicable law although no special
defense to this effect was interposed by the Philippine National Bank to intervenor's
complaint

Let us now look into the evidence in detail. We may properly begin with the
applicable resolutions of the Board of Directors of the Philippine National Bank.

In the minutes of the Board of Directors of the Philippine National Bank of October
4, 1921, is found the following:

"Philippine Vegetable Oil Co.—On motion of Director Westerhouse, duly seconded,

the following resolution was adopted by the Board: Be it resolved, that the General
Manager be, and he is, hereby authorized to finance the operation of
the PhilippineVegetable Oil Co. under the Receivership to the extent of P500,000 to
be secured by copra and oil and to be further secured by P500,000 pledged by Phil.
C. Whitaker in his creditor's agreement."

Under date of October 28, 1921, is found the following:

"The following additional loans with which to buy more copra were approved by the
Board, at the recommendation of the Oil Factory
Committee. Philippine Vegetable Oil Co. F. W. Carpenter, Receiver, P. V. O.,
P200,000."

Under date of December 5, 1921, is found the following:

"After a long discussion and careful deliberation, and on motion of Director

Westerhouse, duly seconded by Director Seaver, the following was unanimously
approved by the Board: To protect the large investments of the Bank, it is the
sense of the Board of Directors to continue financing the operation under
receivership of the Philippine Vegetable Oil Co., the Philippine Manufacturing Co.,
the Cristobal Oil Co., and the Santa Ana Oil Mills, in as modest and economical way
as is consistent with prevailing conditions, the General Manager to report and
secure the approval of the Board for necessary credits from time to time, and that
the Board also recommends that the Oil Committee continue studying the
advisability of financing the operation of other oil mills indebted to the Bank."

Other portions of the minutes of the Board of Directors disclose that the Board
authorized advances to the Vegetable Oil Company to the extent of more than
P1,000,000.

Logically, our review of the evidence should stop here. No contract entered into by
the General Manager of the Bank would be valid unless made with the advice and
consent of its Board of Directors. What the Board of Directors had decreed was that
the Vegetable Oil Company be financed under the receivership to the extent of
P500,000, a sum which was later increased. The Board not alone specified the
amounts of the loans but cautiously added that the General Manager "report and
secure the approval of the Board for necessary credits from time to time." There
was no indication in any action taken by the Board of Directors that it had ever
consented to an agreement for practically unlimited backing of the Vegetable Oil
Company, or that it had ratified any such promise made by its General Manager.

Out of consideration for the parties, however, we will go further and will examine
the remaining evidence.

Passing in review intervenor's exhibits, we first notice Mr. Whitaker's letter to the
Hongkong and Shanghai Banking Corporation of January 1, 1921. He there confirms
his undertaking to assume an obligation to pledge and mortgage specified personal
holdings. The offer is made "contingent upon its acceptance by the other unsecured
creditors * * *. A further condition to the foregoing offer is that the banks parties
to the proposed arrangement supply, subject to the approval of their
representatives on the Board of Directors of the P. V. O. Co., funds sufficient to
enable the P. V. O. Co., to continue its operations during the full term for which my
personal secured undertaking remains in effect." The condition named related to all
the banks and not to the Philippine National Bank, (Intervenor's Exhibit 1.) The
trust deed by Mr. Whitaker in favor of H. C. Sanford makes the purposes and uses
among others "To secure the Philippine National Bank against such losses as it may
sustain, not exceeding a total of P500,000, on such sums as it shall, from time to
time and within three years from July 1, 1921, advance to
the Philippine Vegetable Oil Company to enable the latter to resume business and
continue the manufacture of vegetable oil." This recital is specific as to P500,000
and is general as to further advances, and is made in a document to which
the Philippine National Bank was not a party. (Intervenor's Exhibit 2.) The
creditors' agreement is of similar tenor. (Intervenor's Exhibit 3.) One of the
paragraphs in the preamble of the power of attorney from the Roman Catholic
Archbishop of Manila to Phil. C. Whitaker mentioned that Mr. Whitaker "has also
arranged with the Philippine National Bank for the funds necessary to enable said
Oil Company to resume its business and continue in the manufacture
of vegetable oil." Although this proxy may have been procured at the instance of
the Philippine National Bank, yet obviously it did not bind the officials of the bank.
(Intervenor's Exhibit 5.) The letter of Mr. Wilson as General Manager of
the Philippine National Bank of June 8, 1921, addressed to Mr. Whitaker stated: "I
see no good reason why you should use your property to secure unsecured
obligations, and not provide for the operation of the plant." Merely a friendly
warning, (Intervenor's Exhibit 8.) Mr. Wilson's letter to Mr. Whitaker of April 19,
1923, stated: "The agreement you refer to enabled the Bank to put its securities in
first-class shape. In order to do this, however, it was necessary for it to furnish
certain money for operating the plant, and an additional mortgage was executed. *
* * It is my judgment that it was good business for the Philippine National Bank to
operate the plant as long as it had the P500,000 guarantee. However, the bank put
into the undertaking a great deal more money than it originally intended. Then,
too, the guarantee was not as good as we thought, because the first lien on the
property was not being paid off as rapidly as we thought it would be." Here was
merely an expression of gratification regarding the additional mortgage and
emphasis on the P500,000 guarantee. (Intervenor's Exhibit 7.) We discover
nothing further of interest in the exhibits.

The only oral testimony in point is that given by A. D. Gibbs and Phil. C.
Whitaker. Mr. Gibbs, testifying as to a meeting of the creditors of the Vegetable Oil
Company, said: "Mr. Wilson stated in substance that if the negotiations which were
then pending between Mr. Whitaker and the other creditors, whereby the other
creditors were to refrain from throwing the P. V. O. Co. into, insolvency or from
bringing action against it, could be carried out, that his bank would finance the P. V.
O. Co., and keep it in operation." Mr. Whitaker, testifying as to the same meeting,
said: "Mr. Wilson stated that he had looked into the affairs of the P. V. O. as far as
the short time he had had permitted, and that the P. V. O. had evidently made
good money in the past and if allowed to resume would make good again in the
future, that the P. N. B., as the largest creditor, contemplated financing a
resumption of the company's operations if the company could be kept out of
insolvency." Giving to this testimony its broadest effect, we still discover no definite
agreement binding on the bank but only a general intimation proffered by the
General Manager of the Bank in conference that his bank contemplated financing
the operations of the Vegetable Oil company.

That is all the evidence, documentary and oral, at all pertinent to the issue. We are
clear that taking it entirely into consideration it discloses no binding promise, tacit
or express, made by the Philippine National Bank to continue indefinitely its backing
of the Vegetable Oil Company.

Mr. Whitaker was in no way personally responsible for any part of the obligations of
the Vegetable Oil Company. Nevertheless, he signed the creditors' agreement. That
was a praiseworthy act. We sympathize with him in the situation in which he finds
himself. The various creditors have a large amount of his
property. The Philippine National Bank has taken over the assets of
the Vegetable Oil Company. The latter company has ceased operations. Mr.
Whitaker has not made himself the successor in interest of the Vegetable Oil
Company and so cannot recover from it in these proceedings. But sympathy cannot
be transmuted into legal authoritativeness. If Mr. Whitaker has any other remedy,
that is for him to determine. Here we cannot give him redress for he has not made
out his case except insofar as he has been successful in overturning the last
mortgage of the Philippine National Bank on the property of the Vegetable Oil
Company.

III. Result

We announce the following conclusions:

(1) Plaintiff is entitled to a money judgment against the defendant for

P14,183,679.37 with legal interest thereon beginning with May 8,1924. Exhibit C-1
shows that after May 6, 1924, when Exhibit B-1 was formulated, two further
payments were made on the promissory note for P16,869,975.59, which further
reduced the principal from P15,760,312.85 as totalled in Exhibit B-1 to
P14,183,679.37 as evidenced by Exhibit C-1. As interest has already been charged
up to May 7, 1924, legal interest should begin to run from that date instead of from
May 8, 1923, as fixed by the trial court.

(2) The Philippine National Bank-Philippine Vegetable Oil Co., Inc., mortgage of
February 20, 1922, has not been legally executed by the Philippine Vegetable Oil
Co., Inc., and consequently cannot be given effect. But the prior mortgages held
by the Philippine National Bank of April 11, 1919, November 18, 1920, and January
10, 1921, remain in force and may be foreclosed.

(3) The Philippine National Bank will obviously have a preferred claim when the
three mortgages above mentioned shall be foreclosed. The remainder of the assets
of the Philippine Vegetable Oil Co., Inc., if any, should then be applied to the
payment pro rata of the unsecured claims, among them that of Mr. Whitaker and
the unsecured part of the debt to the Philippine National Bank. Intervenor Whitaker
is entitled to an accounting of the proceeds of the Vegetable Oil Company's
properties caused to be sold by the Philippine National Bank and of the business
operations of the Vegetable Oil Company since March 11, 1921.

(4) Intervenor Whitaker has failed to establish an agreement binding

the Philippine National Bank to provide the necessary operating capital to
the Vegetable Oil Company, and so is not entitled to recover damages from
the Philippine National Bank. Nor can intervenor Whitaker recover P4,424,418.37
from the Vegetable Oil Company since he is not the legatee of the assets of that
company. The trial judge accordingly committed no error in dismissing intervenor's
complaint.

(5) No pronouncement is made with reference to intervenor Whitaker's possible

rights in connection with the creditors' agreement since that agreement is not here
in question and the parties thereto are not before the court.

The case will be remanded to the lower court for the entry of judgment and further
proceedings as herein indicated. Judgment affirmed in part and reversed in part,
without special finding as to costs in either instance.

Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur.

AVANCEÑA, C. J., with whom concurs VILLAMOR, J., concurring and dissenting in
part:

In regard to the validity of the mortgage given by the defendant in favor of the
plaintiff, I concur in the dissenting opinion of Mr. Justice Johnson.

The insinuation made in the majority opinion of undue influence, deceit and fraud
on the part of the plaintiff as grounds for declaring this mortgage void, is absolutely
unsupported by the record. Supposing that undue influence, which is a general and
abstract conception, exists to some extent, it does not constitute a cause for
annulment of the contract so far as it affects the consent, unless the same amounts
to violence, or intimidation, or constitutes fraud, or produces substantial error on
the part of the other contracting party. (Art. 1265, Givil Code,) The mere
intervention of the two representatives of the plaintiff in the Board of Directors of
the defendant, does not alone constitute undue influence. These two
representatives of the plaintiff did not make the majority of the Board of Directors
of the defendant and, on the other hand, no act has been proved to have been
executed by them in connection with the mortgage which might be considered as
undue influence. Neither has it been shown that, anything was done which might
constitute a fraud on the part of the plaintiff in the execution of this mortgage.
Fraud is not presumed. The only thing which can be considered in connection with
this point is the supposed promise given to the defendant to finance its operations.
But, according to the majority opinion, there is no indication of any act of the Board
of Directors of the plaintiff corporation which might imply consent to an agreement
to give unlimited support to the defendant, nor ratification of any promise to this
effect made by the general manager. In order to annul a contract for fraud it must
have been committed by one of the contracting parties. (Art. 1269, Civil Code.) On
the other hand, the general manager of the plaintiff as also admitted in the
majority decision, only intimated generally that the plaintiff corporation would
finance its operations. Moreover, it was proven that the plaintiff did in fact furnish
the defendant with capital in order that it might continue operating for some time,
and continued to furnish it with capital even after the execution of the mortgage,
which, at any rate, is a compliance with the supposed promise. It is evident that, if
the plaintiff, either directly or through its general manager, did not make any
promise to furnish capital to the defendant without any limitation for its operation,
and did in fact furnish it with capital to some extent, it cannot be said to have acted
fraudulently. The plaintiff was not bound to take a chance when it was clearly seen
that the defendant was running behind and, in defense of its interests and in
consideration of its resources, it had a right to stop when it deemed it unwise to
continue any longer. Furthermore, any unfulfilled promise made to the defendant
by the general manager of the plaintiff, without the authorization of the latter, does
not constitute such fraud and cause for the annulment of the contract. Upon this
theory, at most, it might be an incidental fraud committed by a third party, which is
not sufficient cause for the annulment of a contract, but only for an action for
damages against the said third party. (Art. 1270, Civil Code.) At any rate, the
appellant-intervenor cannot seek the annulment of this mortgage under the
provisions of article 1302 of the Civil Code, according to which only those persons
who are principally or subsidiarily bound by the contract may bring the action. The
appellant, not having been a party to this mortgage and not being a representative
of any of those who have intervened therein, is not, principally or subsidiarily,
bound by virtue thereof, and, consequently, has no action and cannot impugn its
validity. (Decisions of Supreme Court of Spain of April 18, 1901 and November 23,
1903.)

The appellant's allegation that the mortgage affects him and the foreclosure thereof
would injure him, does not give him the right to bring an action for annulment, but,
for rescission, if any, which is not the one brought herein. Commenting on this
aspect of the question, Manresa in vol. 8, p. 780, 2d ed., says: "Third persons need
not bring an action for annulment, as provided for in this article (1302, Civil Code)."
The contract really injures or it does not. If it does, whether or not the act or
contract is valid or void, they may bring an action for rescission. If it does not,
whether or not it is valid or void, they cannot have any interest in the matter.

I concur with the majority in all other respects and vote for the affirmation of the
appealed judgment in all its parts.
 DISSENTING OPINION

JOHNSON, J.,

I cannot agree with all of the facts stated in the decision nor with the conclusions
drawn therefrom. I find it necessary therefore to dissent. My dissent is based upon
the following grounds:

A. Legality of the mortgage

First. That the mortgage in question was executed by the Philippine Vegetable Oil
Co., Inc., to the Philippine National Bank and is a valid subsisting contract.

Second. That the statement that the mortgage was executed upon property
in custodia legis is not supported by the facts of record.

At the time said document became a mortgage, the property covered thereby was
not in custodia legis. It is true that at the time the document was signed on the
20th day of February, 1922, the property was then in the hands of a receiver. At
that time, however, the said document was not a mortgage; it was nothing more
nor less than an evidence of indebtedness. It did not contain all the requisites of a
mortgage. Two additional requisites, under the law, were necessary: (a) It was not
a public document at that time and (b) it had not been registered in the registry of
property, which is a prerequisite to its becoming a mortgage (art. 1875, Civil
Code). The property included in said document passed out of the hands of the
receiver on the 28th day of February, 1922, and back into the hands of its owner,
the Philippine Vegetable Oil Company, as its private property. The document
became a public document by acknowledgment before the notary public on the 18th
day of March, 1922. Even that act was not sufficient to make said document a
mortgage. It even then was only an evidence of an indebtedness existing between
the parties thereto. One thing more, under the law, was necessary in order to give
said document the dignity of a mortgage. Under the law, it had to be registered in
order to become a mortgage. The document was registered on the 21st day of
March, 1922, nearly a month after the property had ceased to be in custodia legis,
and thus it became a mortgage. At the time said document became a mortgage the
property was not in custodia legis. Therefore the reason given in the majority
opinion for pronouncing said mortgage illegal and void fails, under the facts and the
law. (Arts, 1857-1875, Civil Code. Olivares vs. Hoskyn & Co., 2 Phil., 689;
McMicking vs. Kimura, 12 Phil., 98; Susara vs. Martinez, 17 Phil., 254;
Lozano vs. Tan Suico, 23 Phil., 16; Borcelis vs. Golingco, 27 Phil., 560; Legarda and
Prieto vs. Saleeby, 31 Phil, 590; Lim Julian vs. Lutero, G. R. No. 25235.[1])

From the foregoing facts and the law it becomes clear that, that part of the majority
opinion which declares the mortgage null and void because it covered property
in custodia legis cannot be supported.

Third. I cannot give my conformity to that part of the majority opinion which
charges that said mortgage did not express the free will of
the Philippine Vegetable Oil Co., Inc. The Philippine Vegetable Oil Co. not only
signed said mortgage voluntarily, before witnesses, but nearly three weeks later
ratified its due execution before a notary public. And not only that,
the Philippine Vegetable Oil Co., Inc., recognized the validity of said document, by
later, making payments thereon.

Fourth. Neither can I give my conformity to that part of the majority opinion which
imputes to the Philippine National Bank bad faith, undue influence, deceit and
constructive fraud in procuring the execution of said mortgage. The record clearly
shows that the mortgage was given to secure the payment of a preexisting
indebtedness for a valuable consideration. In addition to the fact that
the Philippine Vegetable Oil Co. had recognized the validity of said mortgage by
making payments thereon, tjiere is nothing in the record which shows, in the
slightest degree, that it had, prior to the commencement of the present action,
even intimated that the mortgage was illegal and void. It may be added that the
failure of the Philippine Vegetable Oil Co., Inc., to appeal is an additional proof of its
belief that the defense of illegality is not well founded.

In my opinion, the facts of record and the law applicable thereto fully support the
conclusions of the lower court that the mortgage had been legally executed, was a
valid subsisting contract of mortgage, and in ordering the foreclosure of the same.
That part of the judgment appealed from should therefore be affirmed.

B. The right of the intervenor, Phil. C. Whitaker

There is still another conclusion of the majority opinion to which I cannot give my
conformity, and that is, the right of the intervenor to recover some damages for the
breach of contract by virtue of which the Philippine National Bank obligated itself to
continue the operations of the Philippine Vegetable Oil Co., Inc. As I read the
record, it fairly bristles with facts in support of the contention, of Phil. C Whitaker,
that the Philippine National Bank did promise and did obligate itself to furnish
sufficient funds with which to continue the operation of the Philippine Vegetable. Oil
Co., Inc., and that in lieu of said promises and obligations he did, out of his private
funds, and property, obligate himself to pay a portion of said indebtedness against
the PhilippineVegetable Oil Co., which indebtedness he was theretofore under no
obligation to pay. (See creditors' agreement and mortgage in favor of creditors.)
Except for the agreement of the Philippine National Bank to continue the operation
of the PhilippineVegetable Oil Co., Inc., I find nothing in the record to support a
consideration of said creditors' agreement, hy virtue of which Phil. C. Whitaker
promise to pay, out of his private property an indebtedness of about P4,000,000 of
the Philippine VegetableOil Co., Inc. The Philippine National Bank admitted that its
manager made such an agreement with Phil. C. Whitaker, but that the same was
never ratified by its Board of Directors.

After a very careful reading and a re-reading of the entire record I am fully
persuaded that at the time Phil. C. Whitaker entered into the alleged contract with
the Philippine National Bank, by virtue of which the latter was to furnish adequate
funds for the continued operation of the Philippine Vegetable Oil factory, that all
parties then concerned fully understood and believed that such a contract had been
made and entered into with full and sufficient consideration. Every document which
was executed at that time and prior thereto gives ample evidence that such a
contract existed.

C. Proof that all parties concerned believed that the Philippine National Bank had
agreed to furnish sufficient funds for the continued operation of
the Philippine Vegetable Oil Company, Inc.

First. Phil. C. Whitaker honestly believed that the Philippine National Bank had
entered into a valid contract with him, by virtue of which said bank was to furnish
sufficient funds for the continued operation of the Philippine Vegetable Oil factory.
In fact, that was one of the precedent conditions upon which he had obligated his
private property to the extent of nearly P4,000,000 for the payment of a portion of
the debts of said Oil Company. That fact appears not only from Exhibit 1 but from
many other exhibits found in the record, besides the declaration of Phil. C. Whitaker
during the trial of the cause. There is nothing in the record which intimates that his
testimony should not be accepted. On the first day of January, 1921, and nearly six
months before the creditors' agreement was consummated and during the
pendency of the creditors' agreement in Exhibit 1 Mr. Whitaker said: "A further
condition to the foregoing offer (the creditors' agreement) is that the banks, parties
to the proposed arrangement, supply, subject to the approval of their
representatives on the Board of Directors of the Philippine Vegetable Oil Co., funds
sufficient to enable the Philippine Vegetable Oil Co. to continue its operations during
the full terms for which my personal secured undertaking remains in effect." His
belief that such a contract had been entered into is also indicated in Exhibit 6 in
which he threatened the Philippine National Bank with an action "in case it should
cease to finance the PhilippineVegetable Oil Co. as contemplated."

Second. The creditors also believed that such a contract existed between Phil. C.
Whitaker and the Philippine National Bank. Upon that question the creditors'
agreement (Exhibit 3) contains the following significant statement: "the creation of
a fund of P500,000 to be deposited as the same accumulates in
the Philippine National Bank, to be held by it for a period of three years from July 1,
1921, for the purpose of indemnifying it (the Philippine National Bank) against loss
on such sums as it shall hereafter advance to the Philippine Vegetable Oil Co. to
enable the latter to resume business and continue the manufacture of vegetable oil,
with the understanding, however, that at the end of said three years so much of
such funds, if any, as shall not have been used for the purpose of such indemnity
shall be delivered to the trustee for distribution pro rata."

Third. The trustee in the mortgage executed and delivered in conformity with the
creditors' agreement (Exhibit 2) also believed that such a contract existed, or,
otherwise, the following pertinent statement would have found no place therein:
"To secure the Philippine National Bank against such losses as it may sustain, not
exceeding a total of P500,000 on such sums as it shall, from time to time and
within three years from July 1, 1921, advance to the Philippine Vegetable Oil
Company to enable the latter to resume business and continue the manufacture
of vegetable oil."

Fourth. The Board of Directors of the Philippine National Bank also evidently
believed and understood that a contract existed between it and Phil. C. Whitaker,
by virtue of which the former was to furnish to the latter sufficient funds for the
continued operation of the Philippine Vegetable Oil factory, or otherwise, said
Board would not have authorized, by resolution, the President of the Bank to have
commenced furnishing funds to the Philippine Vegetable Oil Company for its
continued operation. The fact that the bank later refused to comply with such
contract does not relieve it, if a contract had actually existed, from the present
action for damages.

Fifth. The Archbishop of Manila, who was a large stockholder in

the Philippine Vegetable Oil Co., Inc., also believed that Phil., C, Whitaker had such
a contract with the Philippine National Bank. In Exhibit 5 the Archbishop says,
among other things that Phil C. Whitaker "has also arranged with
the Philippine National Bank for the funds necessary to enable said Oil Company to
resume its business and continue in the manufacture of vegetable oil." That
statement of the Archbishop was made during the pendency of the creditors'
agreement.

Sixth. Mr. E. W. Wilson, President of the Philippine National Bank, also believed that
the contract between Phil. C. Whitaker and the bank had been consummated. In
Exhibit 7 Mr. Wilson recognized the wisdom of such a contract "as long as it
(the Philippine National Bank) had the P500,000 guaranty."

Seventh Mr. William A. Randall, Comptroller and Executive Officer of

the Philippine Vegetable Oil Co., Inc., in a letter (Exhibit A) written nearly a year
after the alleged agreement between Phil. C. Whitaker and
the Philippine National Bank, expressly recognized the existence of such a contract
with the statement that Phil. C. Whitaker had executed a mortgage in favor of the
creditors upon his private property and had thereby guaranteed to the
said bank the sum of P500,000 for the continued operation of
the Philippine Vegetable Oil factory for a period of three years.

Eighth. An additional reason may be given why the creditors believed that
the Philippine National Bank had contracted to furnish adequate funds for the
operation of the Philippine Vegetable Oil factory. From Exhibit 3, the creditors'
agreement, it will be noted that the creditors who united in that agreement had
unsecured claims against the Philippine Vegetable Oil Co. amounting to
P13,110,568.78, and that by virtue of that agreement (Exhibit 3) they accepted a
mortgage from Mr. Whitaker for a portion of their claims to be paid within a period
of three years, amounting to P4,444,418.37.

It will also be noted that they agreed to accept the obligation of

the Philippine Vegetable Oil Co. for the balance of their respective claims, payable
without interest fifteen years from July 1, 1921, with the understanding, however
that the ad interim surplus earnings of said Vegetable Oil Co., over and above its
liabilities and an amount necessary for a reasonable working capital for said
company, shall be applied to the pro rata satisfaction of said obligations (par. 6 of
Exhibit 3). From Exhibit 3, therefore, it clearly appears that the creditors fully
understood that the Philippine Vegetable Oil factory was to be continued in its
operation. Otherwise, the Philippine Vegetable Oil Co. then being insolvent, the
creditors had no hope of recovering the balance of their claims amounting to about
P9,000,000.

Ninth. The Supreme Court. At the time of the first consideration of this appeal the
Supreme Court was of the opinion, which fact does not appear in the majority
opinion, that the evidence presented by Phil. C. Whitaker in support of his
allegation that the Philippine National Bank had entered into a contract with him to
furnish money for the operation of the Philippine Vegetable Oil factory, was
admissible to show the existence of such a contract. A majority of the court,
however, was of the opinion that no liability resulted from the violation of the terms
of such contract. The court also at the time decided that the evidence which Phil.
C. Whitaker presented in support of his claim was admissible under section 335 of
Act No. 190.

Since that time I have again carefully examined the entire record and I am fully
persuaded that justice and equity demand that Mr. Phil. C. Whitaker be given an
opportunity to show that he is entitled to recover some damages for the following
reasons, in addition to what has been stated above: First, that the contract
between Phil. C. Whitaker and the Philippine National Bank is an enforcible contract
and one upon which he might have maintained a separate independent action
without reference to the present action to foreclose the mortgage; second, that the
only consideration for his promise to pay the claims of the other creditors of
the Philippine Vegetable Oil Co., for the fulfillment of which he turned over to the
trustee practically all of his property amounting to several million pesos, was the
promise of the Philippine National Bank to furnish money for the continued
operation of the Philippine Vegetable Oil factory; third, that except for the promise
of the Philippine National Bank to adequately finance the continued operation of
the Philippine Vegetable Oil factory, there was no consideration received by Mr.
Whitaker for rendering himself personally liable for the personal debts of the Oil
Company.

The record is brimming full with evidence that Mr. Whitaker only promised to pay,
out of his private property, the debts of the Philippine Vegetable Oil Co. because of
his contract with the Philippine National Bank to finance the operation of said Oil
Company, hoping thereby to pay the debts of said Oil Company out of the receipts
resulting from the operation of said Oil factory and thereby relieve his individual
and private property from the obligation which he had imposed upon it. Mr.
Whitaker was under no obligation to place his individual and private property in
jeopardy for the payment of the debts of the Philippine Vegetable Oil Co., and no
doubt would not have entered into his contract with the creditors except for the
promise of the PhilippineNational Bank to adequately finance the continued
operation of said Company for a period of three years.
On October 4, 1921, a little over two months after the execution of the creditors'
mortgage, the Board of Directors of the Philippine National Bank adopted a
resolution, authorizing the President of said bank to finance the operation of
the PhilippineVegetable Oil Co. to the extent of P500,000, to be secured by copra
and oil and to be further secured by P500,000 pledged by Phil. C. Whitaker in his
creditors' agreement. In view of that resolution on the part of the Board of
Directors of the PhilippineNational Bank, in my judgment, it is idle to contend that
the reference in said resolution "and to be further secured by P500,000 pledged by
Phil. C. Whitaker in his creditors' agreement" was not a full and complete
acceptance and ratification by the Board of Directors of
the Philippine National Bank of the creditors' agreement theretofore accepted by
the President of the bank.

It seems clear to me, from all of the facts found in the record, that the only reason
why the creditors granted to the Philippine National Bank, (now) a first lien, on the
property which Mr. Whitaker mortgaged to the creditors, amounting to P500,000,
was to cover possible losses on the part of the Philippine National Bank in its
continued operation for a period of three years, under the agreement which
said bank had with Mr. Whitaker. The proof shows that the bank did furnish funds
for the operation of the Oil factory and that during that period no losses occurred to
the bank. In fact, the record shows that the bank made a profit of something like
P100,000 during that period. Both the creditors and
the Philippine National Bank were interested at that time in having
the Philippine Vegetable Oil factory continue its operations for the reason that they
must have all recognized that the assets of said Oil Company were largely
inadequate to cover their respective claims. It was only through the continued
operation of said Oil Factory that the creditors and
the Philippine National Bank could hope to have their claims paid in full.

My conclusions from all of the record are: First, that the decision of the lower court
ordering the foreclosure of said mortgage should be affirmed; and, second, that
Phil. C. Whitaker should be given an opportunity to prove whether or not he had
suffered any loss or damage from the failure of the Philippine National Bank to
furnish adequate funds for the continued operation of the Philippine Vegetable Oil
factory. The judgment of the lower court should be modified as herein indicated.

[1]
Page 703, ante.

CONCURRING AND DISSENTING OPINION

STREET, J., :
I concur with the majority upon the proposition that the intervenor cannot recover
damages from the bank; but I agree with the Chief Justice in the view that the
judgment of foreclosure should be affirmed. The discussions contained in the
dissenting opinions of the Chief Justice and of Mr. Justice Johnson sufficiently cover
the principal features of the case; but there is one other point in the case upon
which I wish to challenge the correctness of the position of the majority. Upon
inspection of the prevailing opinion it will be seen that the last mortgage executed
by the defendant Philippine Vegetable Oil Company, Inc., in favor of
the Philippine National Bank, has been declared null and void by the court at the
instance of the intervenor, Phil. C. Whitaker, who is a principal stockholder in the
defendant company. It will be further observed that the nullity of this contract was
originally asserted in the answer of the corporation defendant, but this defense was
disallowed by the trial court in giving judgment in favor of the plaintiff for the
foreclosure of the mortgage. From this judgment the Philippine Vegetable Oil
Company did not appeal; and the adjudication of the validity of the mortgage
thereby became conclusive as against the company. There is nothing in the record
to suggest that the abandonment of this defense by the corporation itself and its
failure to appeal from the judgment was due to anything else than a fair exercise of
the judgment of its officers and of the attorney who represented the corporation in
the lower court.

But this court concedes to Mr. Whitaker the right to rely upon the defense of the
alleged nullity of the mortgage; and, at his instance only, the court has now set the
mortgage aside. This, in my opinion, is improper practice. It is true that corporation
stockholders are entitled to defend legal proceedings in behalf of their corporation
when its directors or managing agents are willfully or fraudulently neglectful of its
interests; and the proper practice in such case is for the stockholders to move the
court for leave to intervene in the suit they wish to defend, and to allege, and make
a prima facie showing, that the authorized and managing agents of the corporation
are derelict in their duties and that the corporation has a meritorious defense to the
action (7 R. C. L., p. 334). No such showing has been made in this case, and, on
the contrary, all the indications are that the course pursued by the officers of the
corporation was adopted in good faith. Under these circumstances there is no
propriety in allowing the stockholder to assert in this court a defense which has
been abandoned by the corporation. In justification, apparently, of its departure at
this point from the ordinary rule of procedure, the opinion of the court contains a
statement to the effect that, in dealing with this case, the mode of approach of the
court has been to sweep aside technicalities and resolve in a broad and liberal
manner the various perplexing questions which are before the court. I agree that
rules of procedure should, as a general rule, be applied in furtherance of justice;
but when the accumulated experience of courts through a long period of time has
determined that in an action against a corporation the right of defense, save in
exceptional cases, pertains to the corpbration concerned, arbitrary departures from
that rule should not be allowed. To do so is to admit the mere caprice of the court
as an acceptable criterion for the making of judicial decisions.
 Source: Supreme Court E-Library | Date created: June 25, 2014
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325 Phil. 967

[SYLLABUS]
[ G.R. No. 118509, March 29, 1996 ]
LIMKETKAI SONS MILLING INC., PETITIONER, VS. COURT OF
APPEALS, ET AL., RESPONDENTS.

RESOLUTION

FRANCISCO, J.:

In this motion for reconsideration, the Court[*] is called upon to take a second hard
look on its December 1, 1995 decision reversing and setting aside respondent Court
of Appeals’ judgment of August 12, 1994 that dismissed petitioner Limketkai Sons
Milling Inc.’s complaint for specific performance and damages against private
respondents Bank of the Philippine Islands (BPI) and National Book Store (NBS).
Petitioner Limketkai Sons Milling, Inc., opposed the motion and filed its
Consolidated Comment, to which private respondent NBS filed a Reply. Thereafter,
petitioner filed its Manifestation and Motion for the voluntary inhibition of Chief
Justice Andres R. Narvasa from taking part in any "subsequent deliberations in this
case." The Honorable Chief Justice declined.[1]

The Court is swayed to reconsider.

The bottomline issue is whether or not a contract of sale of the subject parcel of
land existed between the petitioner and respondent BPI. A re-evaluation of the
attendant facts and the evidence on record, specifically petitioner’s Exhibits "A" to
"I", yields the negative. To elaborate:

Exhibit "A"[2] is a Deed of Trust dated May 14, 1976, entered into between
Philippine Remnants Co. Inc., as grantor, and respondent BPI, as trustee, stating
that subject property covered by TCT 493122 (formerly TCT No. 27324)[3] "has
[been] assigned, transferred, conveyed and set over unto the Trustee"[4] expressly
authorizing and empowering the same"in its own name to sell and dispose of said
trust property or any lot or parcel thereof"[5] and "to facilitate [the] sale of the trust
property, the Trustee may engage the services of real estate broker or brokers,
under such terms and conditions which the Trustee may deem proper, to sell the
Trust property or any lot or parcel thereof."[6]

Exhibit "B" is a Letter of Authority for the petitioner issued by respondent BPI to
Pedro A. Revilla, Jr., a real estate broker, to sell the property pursuant to the Deed
of Trust. The full text of Exhibit "B" is hereby quoted:

"Trust Account No. 75-09

2
3 June 1988

ASSETRADE CO.
70 San Francisco St.
Capitol Subdivision
Pasig, Metro Manila

Attention: Mr. Pedro P. Revilla, Jr.

Managing Partner .

Gentlemen:

This will serve as your authority to sell on an "as is" "where is" basis the property
located at Pasig Blvd., Bagong Ilog, Pasig, Metro Manila, under the following details
and basic terms and conditions:

TCT No. : 493122 in the name of BPI as trustee of Philippine Remnants Co., Inc.
33,056.0 square meters (net of 890 sq. m. sold to the Republic of the
Area :
Philippines due to the widening of Pasig Blvd.)
Price : P1,100.00 per sq. m. or P36,361,600.000.
Terms : Cash
Broker’s
2%
Commission :
Others :
a) Docuemntary (sic) stamps to be affixed to Deed of Absolute Sale,
transfer tax, registration expenses, and other titling expenses for account
of the Buyer.
b) Capital gains tax, if payable, and real estate taxes up to 30 June 1988
shall be for the account of the Seller.

This authority which is good for thirty (30) days only from date hereof is non-
exclusive and on a "first come" "first-serve" basis.
 Ver
y truly yours,

BANK OF THE PHILIPPINE ISLANDS

as trustee of

Philippine Remnants Co., Inc.

(Sgd.)
(Sgd)
FERNANDO J. SISON, III
ALFONSO R. ZAMORA
Assistant Vice-President
Vice President"
[Note: Italics supplied]

security guard on duty at subject property to allow him (Revilla, Jr.) and his
companion to conduct an ocular inspection of the premises.[7]

Exhibit "D" is a letter addressed by Pedro Revilla, Jr. to respondent BPI informing
the latter that he has procured a prospective buyer.[8]

Exhibit "E" is the written proposal submitted by Alfonso Y. Lim in behalf of

petitioner Limketkai Sons Milling, Inc., offering to buy the subject property at
P1,000.00/sq. m.[9]

Exhibit "F" is respondent BPI’s letter addressed to petitioner pointing out that
petitioner’s proposal embodied in its Letter (Exhibit "E") has been rejected by the
respondent BPI’s Trust Committee.[10]

Exhibit "G" is petitioner’s letter dated July 22, 1988 reiterating its offer to buy the
subject property at P1,000/sq. m. but now on cash basis.[11]

Exhibit "H" refers to respondent BPI’s another rejection of petitioner’s offer to buy
the property at P1,000/sq. m.[12]

And finally, Exhibit "I" is a letter by petitioner addressed to respondent BPI

claiming the existence of a perfected contract of sale of the subject property
between them.[13]
These exhibits, either scrutinized singly or collectively, do not reveal a perfection of
the purported contract of sale. Article 1458 of the Civil Code defines a contract of
sale as follows:
"ART. 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."

Article 1475 of the same code specifically provides when a contract of sale is
deemed perfected, to wit:
"ART. 1475. The contract of sale is perfected at the moment there is meeting of
minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts."
The Court in Toyota Shaw, Inc. v. Court of Appeals[14] had already ruled that a
definite agreement on the manner of payment of the price is an essential element
in the formation of a binding and enforceable contract of sale. Petitioner’s exhibits
did not establish any definitive agreement or meeting of the minds between the
concerned parties as regards the price or term of payment. Instead, what merely
appears therefrom is respondent BPI’s repeated rejection of the petitioner’s
proposal to buy the property at P1,000/ sq.m.[15] In addition, even on the
assumption that Exhibit "E" reflects that respondent BPI offered to sell the disputed
property for P1,000/sq. m., petitioner’s acceptance of the offer is conditioned upon
or qualified by its proposed terms[16] to which respondent BPI must first agree with.

On the subject of consent as an essential element of contracts, Article 1319 of the

Civil Code has this to say:
"ART. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.

"xxx xxx xxx."

The acceptance of an offer must therefor be unqualified and absolute. In other
words, it must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds. This was not the case herein considering that
petitioner’s acceptance of the offer was qualified, which amounts to a rejection of
the original offer.[17] And contrary to petitioner’s assertion that its offer was
accepted by respondent BPI, there was no showing that petitioner complied with
the terms and conditions explicitly laid down by respondent BPI for prospective
buyers.[18] Neither was the petitioner able to prove that its offer to buy the subject
property was formally approved by the beneficial owner of the property and the
Trust Committee of the Bank, an essential requirement for the acceptance of the
offer which was clearly specified in Exhibits F and H. Even more telling is
petitioner’s unexplained failure to reduce in writing the alleged acceptance of its
offer to buy the property at P1,000/sq. m.
The Court also finds as unconvincing petitioner’s representation under Exhibits "E",
"G", and "I" that its proposal to buy the subject property for P 1,000/ sq. m. has
been accepted by respondent BPI, considering that none of the said Exhibits
contained the signature of any responsible official of respondent bank.

It is therefore evident from the foregoing that petitioner’s documentary evidence

floundered in establishing its claim of a perfected contract of sale.

Moreover, petitioner’s case failed to hurdle the strict requirements of the Statute of
Frauds. Article 1403 of the Civil Code states:
"ART. 1403. - The following contracts are unenforceable, unless they are ratified:

(1) xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

xxx xxx xxx

(e) An agreement for the leasing for a long period than one year, or for the sale of
real property or of an interest therein.

"xxx xxx xxx."

In this case there is a patent absence of any deed of sale categorically conveying
the subject property from respondent BPI to petitioner. Exhibits "E", "G", "I" which
petitioner claims as proof of perfected contract of sale between it and respondent
BPI were not subscribed by the party charged, i.e., BPI, and did not constitute the
memoranda or notes that the law speaks of.[19] To consider them sufficient
compliance with the Statute of Frauds is to betray the avowed purpose of the law to
prevent fraud and perjury in the enforcement of obligations. We share, in this
connection, respondent Court of Appeal’s observation when it said:
"xxx. The requirement that the notes or memoranda be subscribed by BPI or its
agents, as the party charged, is very vital for the strict compliance with the avowed
purpose of the Statute of Frauds which is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory
of witnesses by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged (Asia Production Co., Inc.
vs. Pano, 205 SCRA 458). It cannot be gainsaid that a shrewd person could easily
concoct a story in his letters addressed to the other party and present the letters to
the court as notes to prove the existence of a perfected oral contract of sale when
in truth there is none.

"In adherence to the provisions of the Statute of Frauds, the examination and
evaluation of the notes or memoranda adduced by the appellee was confined and
limited to within the four corners of the documents. To go beyond what appears on
the face of the documents constituting the notes or memoranda, stretching their
import beyond what is written in black and white, would certainly be uncalled for, if
not violative of the Statute of Frauds and opening the doors to fraud, the very evil
sought to be avoided by the statute. In fine, considering that the documents
adduced by the appellee do not embody the essentials of the contract of sale aside
from not having been subscribed by the party charged or its agent, the transaction
involved definitely falls within the ambit of the Statute of Frauds."[20]
[Note: Italics added]

Corrolarily, as the petitioner’s exhibits failed to establish the perfection of the

contract of sale, oral testimony cannot take their place without violating the parol
evidence rule.[21] It was therefore irregular for the trial court to have admitted in
evidence testimony to prove the existence of a contract of sale of a real property
between the parties despite de persistent objection made by private respondents’
counsels as early as the first scheduled hearing. While said counsels cross-
examined the witnesses, this, to our view, did not constitute a waiver of the parol
evidence rule. The Talosig v. Vda. de Nieba,[22] and Abrenica v. Gonda and de
Gracia[23] cases cited by the Court in its initial decision, which ruled to the effect
that an objection against the admission of any evidence must be made at the
proper time, i.e., "x x x at the time question is asked,"[24] and that if not so made it
will be understood to have been waived, do not apply as these two cases involved
facts[25] different from the case at bench. More importantly, here, the direct
testimonies of the witnesses were presented in "affidavit-form" where prompt
objection to inadmissible evidence is hardly possible, whereas the direct testimonies
in these cited cases were delivered orally in open court. The best that counsels
could have done, and which they did, under the circumstances was to preface the
cross-examination with objection. Thus:
"ATTY. VARGAS:

Before I proceed with the cross-examination of the witness, your Honor, may we
object to the particular portion of the affidavit which attempt to prove the existence
of a verbal contract to sell more specifically the answers contained in page 3, Par.
1, the whole of the answer.

"x x x xxx x x x."

"COURT:

Objection overruled.

"Atty. VARGAS.

Your Honor, what has been denied by the Court was the motion for preliminary
hearing on affirmative defenses. The statement made by the witness to prove that
there was a verbal contract to sell is inadmissible in evidence in this case because
an agreement must be in writing.
"COURT:

Go ahead, that has been already overruled.

ATTY. VARGAS:

So may we reiterate our objection with regards to all other portions of the affidavit
which deal on the verbal contract. (TSN, Feb. 28, 1989, pp. 3-5; Italics
supplied.)[26]

"xxx xxx xxx

"ATTY. CORNAGO:

Before we proceed, we would like to make of record our continuing objection insofar
as questions and answers propounded to Pedro Revilla dated February 27, 1989, in
so far as questions would illicit (sic) answers which would be violative of the best
evidence rule in relation to Art. 1403. I refer to questions Nos. 8, 13, 16 and 19 of
the affidavit of this witness which is considered as his direct testimony." (T.S.N.,
June 29, 1990, p. 2)

"ATTY. CORNAGO:

May we make of record our continued objection on the testimony which is violative
of the best evidence rule in relation to Art. 1403 as contained in the affidavit
particularly questions Nos. 12, 14, 19 and 20 of the affidavit of Alfonso Lim
executed on February 24, 1989 x x x." (T.S.N., June 28, 1990, p. 8)."[27]
Counsels should not be blamed and, worst, penalized for taking the path of
prudence by choosing to cross-examine the witnesses instead of keeping mum and
letting the inadmissible testimony in "affidavit form" pass without challenge. We
thus quote with approval the observation of public respondent Court of Appeals on
this point:
"As a logical consequence of the above findings, it follows that the court a quo
erred in allowing the appellee to introduce parol evidence to prove the existence of
a perfected contract of sale over and above the objection of the counsel for the
defendant-appellant. The records show that the court a quo allowed the direct
testimony of the witnesses to be in affidavit form subject to cross-examination by
the opposing counsel. If the purpose thereof was to prevent the opposing counsel
from objecting timely to the direct testimony, the scheme failed for as early as the
first hearing of the case on February 28, 1989 during the presentation of the
testimony in affidavit form of Pedro Revilla, Jr., plaintiff-appellee’s first witness, the
presentation of such testimony was already objected to as inadmissible. "[28]

[Italics supplied.]
WHEREFORE, in view of the foregoing premises, the Court hereby GRANTS the
motion for reconsideration, and SETS ASIDE its December 1, 1995 decision.
Accordingly, the petition is DENIED and the Court of Appeals’ decision dated
August 12, 1994, appealed from is AFFIRMED in toto.

SO ORDERED.

Narvasa, C.J. (Chairman) and Davide, Jr., J., concur.

Panganiban, J., joins Justice Melo’s dissent.

The Third Division of this Court was initially composed of Justices Feliciano,
[*]

Romero, Melo, Vitug and Panganiban. After the promulgation of the December 1,
1995 decision and in view of Justice Feliciano’s retirement, the different Divisions of
the Court were reorganized. Consequently, the present Third Division is now
composed of Chief Justice Narvasa and Justices Davide, Melo, Francisco and
Panganiban.

In a Memorandum dated March 18, 1996, addressed to the members of the

[1]

Court’s Third Division, the Honorable Chief Justice Andres Narvasa noted
petitioner’s baseless motion. Thus:

"2. The information upon which petitioner relies is utterly without foundation in fact
and is nothing but pure speculation or wishful yearning. The Chief Justice wishes to
state for the record that while still in private practice, he never had occasion to
represent the "National Bookstore and/or its principal owner, the Ramos family," in
any case or matter whatsoever; that he has never had any transaction at all with
them and that indeed, he has no recollection of ever having even purchased
anything from said store; and that he does not know, and as far as he knows he
never met, any member of the Ramos family described as principal owners of the
National Bookstore.

"3. There is thus absolutely no reason for the inhibition of the Chief Justice in this
case, and he will continue to take part in all ‘subsequent deliberations in this case."

[2]
Records, pp. 10-14.

[3]
Complaint, p.2; Records, p. 2.

[4]
Deed of Trust, p. 2; Records, p. 11.

[5]
Id.

[6]
Id.

[7]
The Full Text of Exhibit "C" is as follows:

Trust Account No. 75-11

08 July 1988
The Security Guard
On Detail
Universal Security &
Investigation Agency
c/o Phil. Remnants Co., Inc.
Pasig Blvd., Bagong Ilog
Pasig. Metro Manila

Dear Sir:

Please allow Mr. Pedro Revilla, Jr., whose specimen signature appears below, and
company to enter the premises that you are securing located at the above-given
address for the purpose of conducting an ocular inspection and verification survey
of the same.

Kindly extend to Mr. Revilla your usual courtesies and assistance on this
matter. Thank you.

Very truly yours,

BANK OF THE PHILIPPINE ISLANDS

As Trustees For
Philippine Remnants Co., Inc.

By:

(Sgd.)
ROLANDO V. AROMIN
Assistant Vice-President

(Sgd.)
PEDRO REVILLA, JR.

[8]
Exhibit "D" reads as follows:

July 9, 1988

Bank of the Philippine Islands

Bank of P.I. Building
Ayala Avenue, Makati,
Metro Manila

ATTN: Mr. Alfonso R. Zamora

Vice President
and
Mr. Fernando J. Sison III
Asst. Vice President
Gentlemen:

I refer to the authority you gave me on June 23, 1988, in your capacity as Trustee
of the Philippine Remnants Co., Inc., in connection with the sale of one (1) parcel of
land, located along Pasig Boulevard, Bagong Ilog, Pasig, Metro Manila, with an area
of 33,056 square meters and covered by Transfer Certificate of Title No. 493122.

I am pleased to inform you that I have procured a buyer for the above described
property in the name of Limketkai Sons Milling Inc., with office address at Limketkai
Building, Greenhills, San Juan, Metro Manila and represented by its Executive Vice
President, Mr. Alfonso Lim.

It is understood therefore, that pursuant to my authority, I shall be paid a brokers

fee of 2% of the gross purchase price in the event the sale to the above named
buyer is consummated.

Very truly yours,

(Sgd.)
Pedro P. Revilla, Jr.

[Note: Italics supplied]

[9]
Exhibit "E" has these salient portions:

Gentlemen:

This confirms our conversation this morning regarding the purchase of a parcel of
land in Barrio Bagong Ilog, Municipality of Pasig, covered by Transfer Certificate of
Title No. 493122 of the Registry of Deeds of Rizal, (specified therein as having an
area of 33,946 sq. m. minus 890 sq. m. previously sold to the Republic of the
Philippines, or a net area of 33,056 sq. m.), registered in your name as trustee of
the Philippine Remnants Company. Specifically, this confirms your offer to sell the
said property at One Thousand (P1,000.00) Pesos per square meter, and our
acceptance in principle of that offer, subject to the following terms.

a) We are to give an initial amount equivalent to Ten (10%) Percent of the total
purchase price as earnest money;

b) The balance is to be paid by us within ninety (90) days from the execution of the
agreement;

c) If the balance is not paid within the above-stated period, by reason of any cause
other than those mentioned in paragraphs

(d), (e) and (f) below, Twenty (20%) Percent of The Ten (10%) Percent paid under
paragraph (a) shall be forfeited in your favor, the remaining Eighty (80%) is to be
refunded to us; in the event the non-payment of the said balance is caused by non-
performance of any of the stipulations in paragraphs (d), (e) and (f) below, the
entire sum paid as earnest money shall be refunded to us;

d) The Title of the property shall be free from all liens and encumbrances and the
property itself free from all squatters;

e) The BPI as trustee - title holder is to warrant that it the legal right and title to
transfer ownership to us;

f) Physical possession by us upon the payment of the Ten (10%) Percent referred
to in paragraph (a) above

Anticipating your favorable action, we thank you for your prompt attention and
early reply.

Very truly yours,

LIMKETKAI SONS MILLING, INC.

[Note: Italics added]

(Sgd.)
ALFONSO U. LIM
Executive Vice President

[10]
Exhibit "F" states:

Attention:Mr. Alfonso U. Lim

Executive Vice President

Gentlemen:

Re: Bo. Bagong Ilog (Pasig) Property

In connection with subject property, we regret to inform you that the Bank’s Trust
Committee did not approve your proposal to purchase said property under the
terms and conditions of your letter to our Mr. Merlin A. A lbano dated 11 July 1988.
instead, the Trust Committee instructed us to consider offers from other interested
parties.

In a meeting held on 20 July 1988, Senior Management instructed us to offer the

same property to all interested buyers under the following terms and conditions:

a. 15% downpayment upon notification of acceptance by BPI;

b. balance payable upon signing of the Deed of Sale;

c. price to BPI shall be net of broker’s commission;

d. the party with the best price shall have five (5) days within which to pay the
downpayment, otherwise, the party with the next best price shall be entertained.

Should you still be interested in subject property, kindly submit to us not later than
12:00 noon of 22 July 1988 your written offer together with the price per square
meter. The Bank shall not entertain proposals received after said cut-off time.

It is understood, however, that acceptance of any offer is still subject to the

approval of the Beneficial Owner of the property as well as the Trust Committee of
the Bank.

Very truly yours,

(Sgd.) (Sgd.)
ALFONSO R ZAMORA FERNANDO J. SISON III
Vice President Asst. Vice President

[Note: Italics added]

[11]
Exhibit "G" quoted in full is as follows:

July 22, 1988

The Chairman
Trust Committee
Bank of the Philippine Islands
Makati, Metro Manila

Dear Sir:

We are, in receipt of the letter dated July 20, 1988, signed by Mr. Alfonso Zamora
and Mr. Fernando J. Sison III, copy of which we are hereto attaching.

Please consider our letter of July 21, 1988 addressed to Mr. Xavier P. Loinaz, Bank
President, and copy furnished your committee, as our reply thereto.

We are therefore, hereby adopting and reiterating our former offer to buy the lot of
P1,000.00 per square meter but on cash basis.

Very truly yours,

(Sgd.)
LIMKETKAI SONS MILLING, INC.

(Sgd.)
ALFONSO U. LIM
[Note: Italics added] Executive Vice-President

[12]
Exhibit "H"'s pertinent portions read as follows:

Attention:Mr. Alfonso U. Lim

Exec. Vice President

Gentlemen:

We reply to your letter dated 29 July 1988 addressed to the Chairman of our Trust
Committee. We again regret to inform you that your offer to purchase the Bo.
Bagong Ilog, Pasig property (TCT 493122) at P1,000.00 per square meter has not
been approved, as previously communicated to you per our letter dated 20 July
1988.

Per the Deed of Trust entered into by and between the Grantor of said property and
ourselves, the Bank as Trustee is duty-bound. in the event of sale of the property,
to select the terms and consideration it deems to be most advantageous to the
Grantor. The 30-day authority given to your broker also presupposed that during
said period, the Bank on its own would also consider other offers. This is why no
offer to purchase was deemed final and accepted until formally approved by the
Trust Committee.

xxx xxx xxx

Very truly yours,

(Sgd.) (Sgd.)
NELSON M. BONA FERNANDO J. SISON III
Vice President Asst. Vice President

[Note: Emphasis added]

[13]
Exhibit "I" pertinently provides:

August 8, 1988

Mr. Nelson M. Bona

Vice President

and

Mr. Fernando J. Sison III

Asst. Vice-President
BANK OF THE PHILIPPINE ISLANDS
Manila

Gentlemen:
This refers to your letter of 2 August 1988 regarding our agreement to purchase
the Barrio Bagong flog property under TCT No. 493122 at P1,000.00 per square
meter.

xxx xxx xxx

Under the aforequoted provision of the Deed of Trust, your Bank as Trustee, has
the absolute authority to sell and dispose of the property under trust without
consulting the Grantor as to price and terms. Moreover, under said quoted
stipulation, the Bank may engage the services of a real estate broker or brokers
under such terms and conditions which the Trustee may deem proper.
Consequently, on 23 June 1988, you authorized Mr. Pedro P. Revilla, Jr. as broker
to sell the property covered by Title No. 493122 on a "first-come" "first-serve ‘basis
as per written authority signed by Mr. Fernando J. Sison III and Mr. Alfonso R.
Zamora in behalf of the Bank as Trustee of Philippine Remnants Co., Inc.

We would like to invite your kind attention that we are the "first-come" offeror of
the lot. And, while the price mentioned in the authority granted to Mr. Revilla is
P1,000.00 per square meter, nonetheless, in the negotiations between us and your
responsible bank officials done in the presence of Mr. Revilla, the price per square
meter was finally agreed at P1,000.00.

True, we requested for payment of the price on terms but, should the terms we
requested be not accepted by your bank, we were ready to pay in cash per our
understanding with your Mr. Albano and Mr. Aromin and which we have clearly
made known in our July 22, 1988 letters. As a matter of fact, even before July 21
and 22, 1988 we personally tendered a check for the entire purchase price to Mr.
Albano but he refused to accept the check because, according to him, the authority
to transact the sale was taken away from him. The same proposal to pay in cash
was made by us in a meeting with Mr. Bona, Mr. Sison and other Bank officials, and
we were told that the matter will be resolved by the Bank officials concerned in due
time but nothing positive came about. We are still ready to buy the subject
property at P1,000.00 per square meter on cash basis.

xxx xxx xxx

Through this letter we would like to make known to your Bank that we maintain our
position that there has been a perfected contract between your Bank as Trustee
and our Corporation insofar as the sale of the property to us is concerned because
in the written authority granted by you to Mr. Pedro P. Revilla, Jr. signed by no less
than the Assistant Vice-President and Vice-President of the Bank as Trustee, there
is no condition imposed that the sale of the property transacted by him under said
authority is subject to the approval of the Trust Committee.

We hope your Bank will understand our position and we expect that the sale of the
subject lot in our favor be consummated as early as possible.
Very truly yours,

(Sgd)
ALFONSO U. LIM
Exec. Vice-President/Director

[14]
244 SCRA 320,328, citing Velasco v. Court of Appeals, 51 SCRA 439(1973).

[15]
See Exhibits "F" and "H".

[16]
See Exhibit "E".

See Logan v. Phil. Acetylene Co., 33 Phil. 177; Beaumont v. Prieto, 41 Phil. 670;
[17]

Zayco v. Serra, 44 Phil. 326.

[18]
See Exhibit "F".

[19]
See Paredes v. Espino, 22 SCRA 1000.

[20]
CA Decision, pp. 11-12; Rollo, pp. 54-55.

[21]
Rule 130, Section 9, Rules of Court.

[22]
43 SCRA 473.

[23]
34 Phil. 739.

Abrenica, (supra) at p. 746, citing Kreigh v. Sherman, 105 Ill. 49; 46 Am. Dig.,
[24]

Century Ed., 932.

[25]
In Talosig v. Vda. de Nieba, for instance, a deed of sale executed between the
parties was undisputed, as well as the existence of receipts evidencing payment;
while in Abrenica v. Gonda and De Gracia, counsel for the defendant never raised
any objection to the examination of the witnesses which elicited testimony tending
to prove the contract. Only after the examination was terminated did counsel move
to strike out all the given testimony.

CA Decision, pp. 13-14; Rollo, pp. 56-57; Pedro Revilla, Jr., TSN, February 28,
[26]

1989, pp. 3-5.

[27]
Memorandum For Respondent Bank of the Phil. Islands, April 24, 1995, p. 16;
Rollo, p. 229.

[28]
CA Decision, pp. 12-13; Rollo, pp. 55-56.

DISSENTING OPINION
MELO, J.:

I beg to dissent from the new majority’s action granting private respondents’
motions for reconsideration.

On December 26, 1995, respondents Bank of the Philippine Islands (BPI) and
National Book Store, Inc. (NBS) filed separate and extended motions (18 pages and
44 pages, respectively) urging the reconsideration of the Court’s December 1, 1995
decision which was a unanimous action of the then 5 members of the Third
Division. On January 12, 1996 petitioner Limketkai Sons Milling, Inc. (Limketkai), in
turn, filed its 41-page consolidated comment in opposition to the two motions. NBS
thereafter filed a reply to Limketkai’s comment.

A careful consideration of the two motions and the comment thereon, as well as the
reply thereto, readily shows that while lengthy and at times emotional, the motions
are simply reiterations of earlier pleadings found in the records, with each party
repeating the same arguments and insisting that its witnesses are telling the truth,
its evidence is superior, and the witnesses for the other side are lying.

The arguments raised in the two motions for reconsideration and refuted in the
comment revolve around the core issue of whether or not there was a perfected
contract of sale between BPI and Limketkai. The other issue is whether or not
respondent NBS is an innocent buyer for value which acted in good faith.

The other questions posed in the 8 grounds of BPI and the 4 grounds of NBS to
support their respective motions are related to these two issues. All of these
questions, I believe, have already been fully considered and passed upon in detail
in the Court’s decision.

Most of the relevant facts are shared in common by the parties. It is in the
interpretation of these facts and the need to include certain details overlooked by
respondent Court. where they differ.

Invocation by Mr. Justice Davide of the general rule that in petitions for review of
decision of the Court of Appeals only questions of law may be raised to the
Supreme Court is, with all due respect, not all that too significant nor is the
principle really being ignored. The different conclusions and interpretations arising
from the same facts bring about questions of law. In the same way that respondent
court did not consider itself bound by the conclusions of the regional trial court, we
should have no reluctance to discard the factual interpretations of respondent court
and reiterate those of the trial court.

There are also well-established exceptions to the general rule that the factual
findings and conclusions drawn therefrom by the Court of Appeals should be treated
as conclusive.

In Gaw vs. Intermediate Appellate Court (220 SCRA 405, 413-414 [1993], this
Court, through Mdm. Justice Romero, stated:
As a rule, the jurisdiction of this Court in cases brought to it from the Court of
Appeals or the then Intermediate Appellate Court is limited to the review and
revision of errors of law allegedly committed by the appellate court, as its findings
of fact are deemed conclusive. As such, this Court is not duty-bound to analyze and
weigh all over again the evidence already considered in the proceedings below. This
rule, however, is not without exceptions. One of these exceptions is when there is a
conflict between the factual findings of the Court of Appeals and the trial court
which necessitates a review of such factual findings. This case falls within the
exception.

(at pp. 413-414.)

Summing up or collating the instances when findings of fact of the Court of Appeals
may be examined, we had occasion to re-echo Remalante vs. Tibe (158 SCRA 138
[1985]) in Morales vs. Court of Appeals (197 SCRA 391 [1991]), thusly:

In several decisions of recent vintage (Rizal Cement Co., Inc. v. Villareal, G.R. No.
L-30272, February 28, 1985, 135 SCRA 15; Ramos v. Court of Appeals, G.R. No. L-
25463, April 4, 1975, 63 SCRA 331; Garcia v. Court of Appeals, G.R. No. L-26490,
June 30, 1970, 33 SCRA 623; Ramos v. Pepsi-Cola Bottling Co., G.R No. L-22533,
February 9, 1967, 19 SCRA 289), the Court summarized and enumerated the
exceptional circumstances that would compel the Supreme Court to review findings
of fact of the Court of Appeals, to wit:

(1) when the conclusion is a finding grounded entirely on speculation, surmises or

conjectures (Joaquin v. Navarro, 93 Phil. 257 (1953);

(2) when the interference made is manifestly absurd, mistaken or impossible (Luna
v. Linatoc, 74 Phil. 15 (1942);

(3) when there is grave abuse of discretion in the appreciation of facts (Buyco v.
People, 95 Phil. 253 (1954);

(4) when the judgment is premised on a misapprehension of facts (Dela Cruz v.

Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. L- 48290,
September 29, 1983, 124 SCRA 808);

(5) when the findings of fact are conflicting (Casica v. Villeseca, 101 Phil. 1205
(1957); and

(6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee
(Evangelista v. Alto Surety & Ins. Co., Inc., 103 Phil. 401 (1958).

(at p. 401.)
Items 1, 2, and 4 of the above citation are applicable to this case.

The majority opinions of Justices Davide and Francisco are based on interpretations
of petitioner’s first nine exhibits. There is no dispute over Exhibit "A", except that it
may be pointed out that BPI was authorized by the owner of the lot to engage
brokers to sell the property. Exhibit "B" implements Exhibit "A".

The first disputed issue refers to the authority of the broker and the Assistant Vice-
President and Trust Officer, Rolando V. Aromin, of BPI to sell the lot. It was the
broker, Pedro Revilla, who offered his services to sell the lot at P 1,000.00 per
square meter. Kenneth Richard Awad of Philippine Remnants Co., Inc., owner of the
lot, gave his written conformity (Exh. "P") on June 14, 1988 to the sale at
P1,000.00 per square meter for cash with a 2% commission for the broker.

The records show that Assistant Vice-President Rolando V. Aromin was in charge of
the administration and management of various real estate property held in trust by
the bank. This explains why the owner of the lot, the broker, and the buyer all dealt
with Aromin. He was the one held out by BPI as authorized to sell trust property.
On December 3, 1990, long after the disputed sale had been consummated, Aromin
defined his duties in his testimony as follows:

ATTY. VERZOSA (On Cross) -

Q. You mentioned that one of your duties is the administration and management of
the real estate properties endorsed by your clients to the bank?

A. Yes, sir.

Q. One of these duties include the disposition of real estate properties?

A. Yes, sir.

Q Are we to understand that you do not have to get approval of anybody before
disposition of the properties entrusted to your bank?

A In this particular case we have received instruction regarding instruction (sic)

from the owner directly, sir.

ATTY. SENO:

At this instance, may I request that this witness be required to produce this
afternoon the written instruction from Mr. Awad and if he has copy of the written
offer of Technoland, the disapproved authority to sell to Technoland if he has copy.

COURT:
So ordered.

ATTY. VERZOSA:

Q.With that answer, are we to understand that most properties could be disposed
without the approval of the Trust Committee based on your previous answer?

AYes, sir.

(tsn, Dec. 3, 1990 [A.M.], pp. 34-35).

Only after Aromin’s testimony as a hostile witness displeased BPI were his authority
and responsibility withdrawn by the bank.

Since Aromin was not going to sell the lot himself, for this power was delegated to
a broker, authority from the BPI Trust Committee was sought and given. Revilla
was authorized to sell the property at P1,000.00 per square meter. When the
authority was forwarded to Aromin, he changed the quoted selling price to
P1,000.00 per square meter. This was done because another broker, Technoland
Properties, had offered to sell the lot at that price. Aromin, however, was later
informed (Exh. "S") that Technoland Properties was not in the list of brokers
approved by the BPI Investment and Trust Committees to sell trust property held
by the bank.

The authority (Exh. "B") given to broker Revilla, clearly authorized him "to sell" the
property, not merely to look for a buyer. Revilla contacted petitioner through its
Executive Vice-President Alfonso Lim who agreed to buy the lot.

It is significant to note that, all this while, it was Assistant Vice-President Aromin
with whom all the parties in this transaction were dealing. He was the BPI official
who gave written authority (Exh. "C") for the buyer to inspect what it was
purchasing.

On July 9, 1988 Revilla wrote BPI (Exh. "D") that he had a buyer. Again, the letter
was received by Aromin. On July 11, 1988 the top officials of petitioner, Alfonso Lim
and Albino Limketkai, went to the bank to confirm the sale. Significantly, they went
to the office of Merlin Albano and Rolando Aromin of the Real Property Management
Unit and not to any other officer, much less the Trust Committee.

Justice Davide asks why negotiations over the price were made with Aromin and
Albano, not other officials. The records show that Alfonso Lim trusted Revilla who
brought him to the office in charge of and managing trust property of the bank. BPI
is a big place. When Revilla brought Alfonso Lim to Merlin Albano and Rolando
Aromin and introduced them to Lim as Vice-President and Assistant Vice President,
respectively, there was no reason for Lim not to assume and presuppose their
authority to dispose of the property. The visit to BPI does not in any way reduce or
lessen the authority of Revilla to sell the lot. It shows that petitioner’s officials were
cautious buyers and wanted to be sure about the details and the documentation of
the transaction, considering the amount involved. They decided to deal not only
with the broker but also with the bank officials themselves.

When the Limketkai brothers met with Albano and Aromin, they tried to bring down
the price to P900.00 per square meter. Albano said it should be P1,100.00. Finally,
the parties both agreed that the lot would be sold at P1,000.00 per square meter to
Limketkai, payable in cash.

At that very moment, the contract of sale was perfected. There was a meeting of
the minds upon the subject matter and the P1,000.00 per square meter price.

On the attempts of private respondents to denigrate the authority of Aromin to

close the deal, it may be noted that Alfonso Lim, in all his dealings with BPI,
conducted business with Aromin. There is nothing in the records to show that
Aromin, at this point, had already been stripped of his authority. When he testified
two years after the sale, he was still BPI’s Assistant Vice-President.

In Areola vs. Court of Appeals, et al., (236 SCRA 643 [1994]), this Court held:

Accordingly, a banking corporation is liable to innocent third persons where the

representation is made in the course of its business by an agent acting within the
general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetuate a fraud upon his
principal or some other person, for his own ultimate benefit.

(at pp. 652-653, italics supplied).

Petitioner stresses that Aromin was not in any way abusing his authority nor
attempting any fraud. A corporation acts through its officers and employees whose
acts, if within the scope of their authority, bind the corporation. The public
transacted business with Vice-President and Trust Officer Aromin. He was regularly
acting within the scope of his duties and responsibilities. Since Assistant Vice-
President and Trust Officer Aromin himself testified that he closed the deal for BPI,
there should be no question about there being a perfected contract of sale.

The testimony of Aromin is significant at this juncture:

Q. What transpired after the two (2) gentlemen (the Lim’s) were introduced to you?

A. After the usual courtesies, Mr. Revilla informed us that the purpose of their visit
is to discuss the possibility of his client, Limketkai Sons Milling, of buying the
Bagong Ilog property. Mr. Lim offered to buy the property at P900.00 per sq. m.
while Mr. Albano counter-offered to sell at P1,100.00/sq. m. but after the usual
haggling, we finally agreed to sell the property at the price of P1,000.00/sq. m.
because this was the price the beneficial owner of the property instructed the bank
to quote to prospective buyers as borne by the fact that we are holding the
covering letter of instruction to sell the property at P1,000.00 per square meter.

Q. Are you telling the Court that there was meeting of the minds between the buyer
and the bank in respect to the price of P1,000.00/sq. m.?

A. Yes, sir, as far as my evaluation, there was a meeting of the minds as far as the
price is concerned, sir.

Q. After you were able to agree on the price of P1,000.00/sq. m. since the letter of
authority says the payment must be in cash basis, what transpired later on?

A. After we have agreed on the price, the Lim brothers inquired on how to go about
submitting the covering proposal if they will be allowed to pay on terms. They
requested us to give them a guide on how to prepare the corresponding letter of
proposal. I recall that upon the request of Mr. Albino Limketkai, we dictated a guide
on how to word a written firm offer that was to be submitted by Mr. Lim to the bank
setting out the terms of payment but with the mutual agreement that if the
proposed payment on terms will not be approved by our Trust Committee,
Limketkai should pay the price in cash.

Q. And did the buyer Limketkai agree to pay in cash in case the offer of terms will
be cash (disapproved).

A. Yes, sir.

Q. At the start did they show their willingness to pay in cash?

A Yes, sir.

Q. So the amount was no longer subject to the approval or disapproval of the

Committee, it is only on the terms?

A. Yes, sir.

(tsn, Dec. 3, 1990 [A.M.], pp. 16-19;

italics and parenthesized word, supplied).

The testimony of the bank official dovetails with those of Limketkai officials involved
in the transactions. Revilla was the accredited BPI broker for the real estate which
BPI wanted to sell. Aromin was the BPI Assistant Vice-President and Trust Officer
charged with the handling of real estate transactions and incidents. Together with
the statements of Limketkai officials, the logical and convincing testimony of
disinterested witness Revilla and hostile witness Aromin categorically shows there
was a perfected contract of sale. NBS states that Aromin merely pretended to
testify reluctantly but was, in truth, biased in favor of Limketkai. As one of the
assistant vice-presidents of BPI when he testified, there was every reason for
Aromin to be genuinely reluctant even when stating the truth as it was against his
employer. Aromin and Revilla were privy to the contract. The BPI officials who
testified for respondents spoke of negative restrictions in general but not on the
contract itself. They were not present during the negotiations and during the
perfection of the contract. Respondents denigrate Aromin for what they call his
prodigious memory for details, but this just shows that he was well-versed in his
line of work due to his long years of handling BPI real estate matters and that he
was properly attentive to every aspect of his job.

Respondents’ arguments on the usual limitations on the powers of real estate

brokers in general cannot prevail over the specific and exact wording of Revilla’ s
written authority. Revilla was authorized "to sell" the lot but there is nothing
unusual about a fully authorized agent bringing the buyer to his principal, not only
to strengthen the validity of his representations but also for easier documentation
of the sale. The fact that broker Revilla dealt with Aromin and brought the buyers
directly and introduced them shows not only the authority of Aromin but also that
BPI represented Aromin to the public as its official handling such matters.

BPI’s contention that it had discretion to sell the lot without having to get
permission from the corporation of the Awad family is correct. However, the fact
that Kenneth Richard Awad confirmed in writing (Exh. "P") their conformity to the
sale of the lot at P 1,000.00 per square meter inspite of BPI’s discretionary
authority over the lot held in trust, merely indicated how careful and businesslike
the owner and the bank officials were in disposing of the lot. The letter does not in
any way prove the opposite.

The real and principal bone of contention refers to events which immediately
followed the perfection of the agreement.

Exhibit "E", the request of Alfonso Lim to pay on terms, cannot be treated in
isolation of the events that caused it to be written. As earlier stated, Limketkai and
the BPI officials agreed that the disputed lot shall be sold to Limketkai at P1,000.00
per square meter payable in full and in cash. The record shows that on July 11,
1988 this agreement was finalized and tender of full payment was made on July 18,
1988.

On July 11, however, Alfonso Lim asked if it was possible to pay on terms. This
appears to be a rational query. It was answered in a perfectly logical manner. Vice-
Presidents Albano and Aromin answered Lim that there was no harm in asking to
pay in terms since this mode of payment had been allowed in past cash sales.
Limketkai and the bank officials, nonetheless agreed that should term payments not
be acceptable, full cash payment as agreed upon would be effected. This explains
the background of Exhibit "E".

The ruling in Villonco Realty Co. vs. Bormaheco (65 SCRA 352 [1995]), cited in our
unanimous December 1, 1995 decision bears repeating:

"The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contract." (Article 1475, ibid.)

xxx xxx xxx

"Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer"
(Art. 1319, Civil Code). "An acceptance may be express or implied" (Art. 1320, Civil
Code).

xxx xxx xxx

"It is true that an acceptance may contain a request for certain changes in the
terms of the offer and yet be a binding acceptance. ‘So long as it is clear that the
meaning of the acceptance is positively and unequivocally to accept the offer,
whether such request is granted or not, a contract is formed." (Stuart vs. Franklin
Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts).

xxx xxx xxx

. . . the vendor’s change in a phrase of the offer to purchase, which change does
not essentially change the terms of the offer, does not amount to a rejection of the
offer and the tender or a counter-offer." (Stuart vs. Franklin Life Ins. Co., supra).

(pp. 362-363; 365-366; pp. 12-18, Decision.)

The record shows that the two bank officials were the ones who dictated the terms
of payment, as Albino Limketkai told them that he did not know how to go about
drafting the request to pay on terms. It bears emphasizing that Exhibit "E", the
letter asking for term payments, was made in the afternoon of July 11, 1988 or
after the parties already had a meeting of the minds on the contract.

Respondents ask why did Limketkai, if there was already a perfected contract to
pay at P1,000.00 per square meter in cash, allow itself to supposedly yield to the
BPI officials blandishments on term payments, knowing that it would endanger its
position?

The answer is that Limketkai did not know. The record shows that the buyer was
dealing in good faith and at arms-length with BPI. It is a natural behavior of the
buyer to trust the word of BPI officials who represent the bank, as the bank is a
symbol of trust and credibility. Limketkai had no knowledge or reason to suspect
that an influential person would enter the picture and inveigle the top officials of the
bank to rescind the perfected contract and to sell the lot to him. Petitioner
Limketkai acted without suspicion as it saw no imminent danger to the agreement.

Around July 14, 1988, Limketkai learned that BPI was freezing action on its July 11
request. So it tendered full payment on July 18, 1988 before the BPI Trust
Committee could act either way on the request to pay on terms and also before the
expiry date of the authority letter of broker Revilla, that is July 23, 1988. The
tender of payment was, therefore, a withdrawal or abrogation of Limketkai’s July 11
request before it would either be granted or withdrawn, before BPI could act on the
request for a change of terms.

On July 20, 1988, BPI’s senior management officials held a meeting and decided to
disapprove Limketkai’s request (Exh. "F"). But this was two days after Limketkai
had already tendered full payment and when the request was technically moot.

On July 22, 1988, or four days after tender of payment was not accepted, Limketkai
wrote another letter (Exh. "G") in reply to BPI’s letter (Exh. "F"). The letter of
Limketkai dated July 22, 1988 merely asked for compliance with the agreement
with Messrs. Albano and Aromin on the original offer at P 1,000.00 per square
meter.

On July 22, 1988, BPI repeated its July 20, 1988 disapproval of the request to pay
on terms (Exh. "H"). Since BPI stated at that point that no offer to purchase was
deemed final and accepted until formally approved by the Trust Committee,
Limketkai wrote BPI on August 8, 1988 (Exh. "I") explaining why the acts of BPI are
a repudiation of the contract perfected as early as July 11, 1988.

In said August 8, 1988 letter of Limketkai to Vice-President Nelson M. Bona and

Assistant Vice-President Fernando J. Sison III, Alfonso Lim stated in part:

We would like to invite your kind attention that we are the "First-come" offeror of
the lot. And, while the price mentioned in the authority granted to Mr. Revilla is
P1,100.00 per square meter, nonetheless, in the negotiations between us and your
responsible bank officials done in the presence of Mr. Revilla, the price per square
meter was finally agreed at P1,000.00.

True, we requested for payment of the price on terms but, should the terms be not
accepted by your bank, we were ready to pay in cash per our understanding with
your Mr. Albano and Mr. Aromin and which we have clearly made known in our July
21 and July 22, 1988 letters. As a matter of fact, even before July 21 and 22, 1988
we personally tendered a check for the entire purchase price to Mr. Albano but he
refused to accept the check because, according to him, the authority to transact the
sale was taken away from him. The same proposal to pay in cash was made by us
in a meeting with Mr. Bona, Mr. Sison and other Bank officials, and we were told
that the matter will be resolved by the Bank officials concerned in due time but
nothing positive came about. We are still ready to buy the subject property at
P1,000.00 per square meter on cash basis.
BPI’s Assistant Vice President Aromin confirmed the tender of payment on July 18,
1988 as follows:

Q. Since no action was taken on the terms that you agreed upon with Limketkai, as
according to you the authority was taken away from you by higher authorities as
relayed to you by Mr. Albano, did you meet Mr. Lim again on July 18, 1988?

A. Yes, sir, we met him again few days after they submit the letter of proposal. It
was on that day that Mr. Alfonso Lim, together with Mr. Revilla met us in the office
of Mr. Albano on our side and Mr. Bobby de Leon who was manager or the account
officer handling the account of Limketkai in the bank when Mr. Alfonso Lim
tendered a check in the amount of P33,056,000.00 representing payment on the
basis of P1,000.00/sq. m. for the property, sir.

Q. Did you accept the check?

A. It was Mr. Albano who is responsible for that and he did not accept the check for
the same reason we are no longer authorized to handle the transaction and he also
said to present the check to the officer who is now authorized to handle the
transaction, sir.

(tsn, Dec. 3, 1990 [A.M.], pp. 28-29.)

Private respondents’ case primarily depends upon Exhibits "E", "F", "G", "H", and
"I". The separate opinions of Justices Davide and Francisco gave credence to
respondents’ position. It can be seen above that far from supporting the movants’
arguments, Exhibits "E", "F", "G", "H", and "I" prove exactly the opposite of what
the respondents allege.

Regarding the tender of P33,056,000.00 in full payment of the lot, respondents did
not question the fact of tender nor the authenticity of the check tendered by
Limketkai, through Alfonso Lim, to BPI. Instead, respondents tried to show that the
check was not fully funded by assailing the non-categorical answers of the
Solidbank official who refused to answer the questions of respondents’ lawyers due
to the prohibition under the Secrecy of Bank Deposits Law against a bank revealing
the extent of its client’s deposits. Alfonso Lim testified that in tendering the check,
he was accompanied by a certain Bobby de Leon, a high-ranking officer of the BPI,
and he approached several other bank executives among whom was the Vice-
President, Nelson Bona, in the presence of Sison, de Leon, Mike Mendoza, and Ruth
Bandera. The record shows that tender of payment was also made on BPI’s
Fernando Sison III, Merlin Albano, and Nelson Bona, all high-ranking BPI officials.
Inexplicably, respondents did not present any of these officials to rebut the
testimony of Alfonso Lim of his having tendered a check for the amount of the
purchase price. At any rate, all the BPI officials to whom the check was tendered
did not question, at the time, its authenticity nor its funding. They gave only one
reason for non-acceptance of tender - either they had no authority or their
authority to accept payment from Limketkai had been withdrawn. If they did not
possess authority earlier, there would have been nothing to withdraw.

Whether the Statute of Frauds is applicable or not was discussed at length before
the trial court and the Court of Appeals and in our December 1, 1995 decision.

The contention of respondents that a formal deed of sale is essential before the
contract may be perfected and proved indicates a misapprehension of the Statute
of Frauds. As emphasized in the decision, a sale of land is valid regardless of the
form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113,
199 [1991]). The fact that the deed of sale still had to be signed and notarized does
not mean that no contract was perfected. If the law requires a document or special
legal form, the contracting parties may require each other to observe the formality
after the contract is perfected.

If there had been a formal deed of sale in this case, there is no need to even
discuss the Statute of Frauds. Precisely because Article 1403 of the Civil Code
requires a "note or memorandum thereof’ and mentions "secondary evidence of its
contents," the Statute of Frauds becomes material. Taking all of the documents in
this case together, there can be no doubt that the requirement of a note or
memorandum of the sale is more than met. This issue is more fully discussed in
pages 14 to 17 of our December 1, 1995 decision.

Equally significant is the fact that Limketkai’s witnesses were cross-examined at

length by respondents’ counsels on the perfection of the contract, the purchase
price, the tender of full cash payment, and other facts which respondents-movants
now claim must be stricken out unless fully documented in writing. Even assuming
for purposes of argument that the perfected contract infringes the Statute of
Frauds, in Abrenica vs. Gonda (34 Phil. 379 [1916]), this Court ruled that the
questioned contract is ratified when the defense fails to object or asks questions on
cross-examination. As decided in Abrenica and later cases such as Talosig vs. Vda.
de Nieba (43 SCRA 472 [1972]), assuming that parol evidence was initially
inadmissible, the same became competent and admissible because of the cross-
examination. The cross-examination on the contract is deemed a waiver of the
defense of the statute of frauds (Vitug, Compendium of Civil Law and
Jurisprudence, 1993 Revised Edition, p. 563).

There is no reason to doubt the aptness of the documents and the reliable nature of
the testimony, especially the answers during cross-examination, showing a meeting
of the minds of buyer and seller as to the subject matter of the contract and the
cause of the obligation.

Regarding the buyer-in-good-faith arguments of NBS, perhaps all that needs to be

said is that it is readily seen that any person who buys property under litigation
which is covered by a notice of lis pendens subjects himself to the outcome of the
litigation. Respondents try to explain the allegedly true nature of the petitioner’s
so-called badges of fraud - BPI dealing directly through top executives with an
influential buyer when the lot was supposed to be sold through brokers; there were
personal, family, and business relationships between BPI Senior Vice-President
Edmundo Barcelon and NBS President Alfredo Ramos; NBS offered Limketkai a big
amount through broker George Feliciano to drop the case and to lift the notice of lis
pendens; the vendor did not guarantee its title to the land and the right of the
buyer to proceed against the seller if the latter sold property no longer owned by it
and instead had the buyer guaranteeing its own purchase; and NBS’s construction
on the property was characterized by easy portability. The explanations are far
from convincing. The confluence of all these factors shows that there was indeed
collusion between a top BPI executive and the NBS president whose relationship
was such that BPI was willing to renege on its obligations and rescind a perfected
contract with an earlier buyer. Of course, seller BPI was protected because buyer
NBS assumed all risks.

NBS refutes the arguments of Limketkai on the temporary nature and easy
portability of its construction on valuable real estate. It states that the building was
destroyed by fire. Whether or not the temporary nature of the building may still be
proven, the record shows that NBS was acting in bad faith in trying to buy property
which was earlier sold to another buyer and buying it inspite of notice of lis
pendens. BPI Vice-President Barcelon and NBS President Ramos also gave
conflicting testimony on similar points. Ramos strongly denied friendship or even
acquaintanceship with Barcelon. He denied even discussing with Barcelon his desire
to buy the property. Barcelon, in turn, admitted his friendship with Ramos, a valued
BPI client, and their taking lunch together at which time the sale to NBS was
discussed. There was no reason for Ramos to deny the friendship or their discussion
of the sale even as Barcelon was innocently contradicting him, unless the witness
wanted to hide his bad faith from the trial court.

The chain or circumstances in this case shows that the participants acted in the
natural order of things and that the sale to Limketkai was not only perfected but
appears regular and aboveboard.

The resolution of the instant motions for reconsideration hinges on the credibility of
witnesses and the weight to be given to the documentary and other pieces of
evidence. The observations and conclusions of the trial judge who directly heard the
witnesses and who personally presided over the presentation and offer of other
evidence, especially as to the credibility of witnesses for both sides, is significant in
this regard.

I find respondents’ criticisms of the trial court and their skepticism of this Court’s
statements not only totally unfounded but also tastelessly disdainful. A losing
litigant in a case where both the evidence and the law are clearly against its
position cannot, after a decision has been rendered, get a reversal through such
tactics. The motions must be resolved on their merits.

I, therefore, vote to deny the two motions for reconsideration.

 Source: Supreme Court E-Library | Date created: October 13, 2014
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483 Phil. 735

SECOND DIVISION
[ G.R. No. 128120, October 20, 2004 ]
SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON,
FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES,
LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ,
NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA,
HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS
NICOLAAS, JOSEPH PEKELHARING (NOW REPRESENTING
HIMSELF WITHOUT COURT SANCTION AS “ JOOST
PEKELHARING),” MASSIMO ROSSI AND ED ENRIQUEZ,
PETITIONERS, VS. COURT OF APPEALS, ALS MANAGEMENT &
DEVELOPMENT CORPORATION AND ANTONIO K. LITONJUA,
RESPONDENTS.

DECISION

TINGA, J,:

Petitioners seek a reversal of the twin Orders[1] of the Court of Appeals dated 15
November 1996[2] and 31 January 1997,[3] in CA-G.R. CV No. 35886, entitled “ALS
Management et al., v. Swedish Match, AB et al.” The appellate court overturned the
trial court’s Order[4] dismissing the respondents’ complaint for specific performance
and remanded the case to the trial court for further proceedings.

Swedish Match, AB (hereinafter SMAB) is a corporation organized under the laws of

Sweden not doing business in the Philippines. SMAB, however, had three subsidiary
corporations in the Philippines, all organized under Philippine laws, to wit: Phimco
Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc.

Sometime in 1988, STORA, the then parent company of SMAB, decided to sell
SMAB of Sweden and the latter’s worldwide match, lighter and shaving products
operation to Eemland Management Services, now known as Swedish Match NV of
Netherlands, (SMNV), a corporation organized and existing under the laws of
Netherlands. STORA, however, retained for itself the packaging business.

SMNV initiated steps to sell the worldwide match and lighter businesses while
retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the
first being to sell its shares in Phimco Industries, Inc. and a match company in
Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV
with its syndicate of lenders. The other move was to sell at once or in one package
all the SMNV companies worldwide which were engaged in match and lighter
operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas

(SMSA)—the management company of the Swedish Match group—was
commissioned and granted full powers to negotiate by SMNV, with the resulting
transaction, however, made subject to final approval by the board. Enriquez was
held under strict instructions that the sale of Phimco shares should be executed on
or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez
came to the Philippines in November 1989 and informed the Philippine financial and
business circles that the Phimco shares were for sale.

Several interested parties tendered offers to acquire the Phimco shares, among
whom were the AFP Retirement and Separation Benefits System, herein respondent
ALS Management & Development Corporation and respondent Antonio Litonjua
(Litonjua), the president and general manager of ALS.

In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to
buy all of the latter’s shares in Phimco and all of Phimco’s shares in Provident Tree
Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.[5]

Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated
1 December 1989, thanked respondents for their interest in the Phimco shares.
Rossi informed respondents that their price offer was below their expectations but
urged them to undertake a comprehensive review and analysis of the value and
profit potentials of the Phimco shares, with the assurance that respondents would
enjoy a certain priority although several parties had indicated their interest to buy
the shares.[6]

Thereafter, an exchange of correspondence ensued between petitioners and

respondents regarding the projected sale of the Phimco shares. In his letter dated
21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter
division for US$30.6 million, which per another letter of the same date was
increased to US$36 million.[7] Litonjua stressed that the bid amount could be
adjusted subject to availability of additional information and audit verification of the
company finances.

Responding to Litonjua’s offer, Rossi sent his letter dated 11 June 1990, informing
the former that ALS should undertake a due diligence process or pre-acquisition
audit and review of the draft contract for the Match and Forestry activities of
Phimco at ALS’ convenience. However, Rossi made it clear that at the completion of
the due diligence process, ALS should submit its final offer in US dollar terms not
later than 30 June 1990, for the shares of SMAB corresponding to ninety-six
percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in
case the “global deal” presently under negotiation for the Swedish Match Lights
Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS’ costs
related to the due diligence process.[8]

Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent

change in SMAB’s approach to the bidding process. He pointed out that in their 4
June 1990 meeting, he was advised that one final bidder would be selected from
among the four contending groups as of that date and that the decision would be
made by 6 June 1990. He criticized SMAB’s decision to accept a new bidder who
was not among those who participated in the 25 May 1990 bidding. He informed
Rossi that it may not be possible for them to submit their final bid on 30 June 1990,
citing the advice to him of the auditing firm that the financial statements would not
be completed until the end of July. Litonjua added that he would indicate in their
final offer more specific details of the payment mechanics and consider the
possibility of signing a conditional sale at that time.[9]

Two days prior to the deadline for submission of the final bid, Litonjua again
advised Rossi that they would be unable to submit the final offer by 30 June 1990,
considering that the acquisition audit of Phimco and the review of the draft
agreements had not yet been completed. He said, however, that they would be able
to finalize their bid on 17 July 1990 and that in case their bid would turn out better
than any other proponent, they would remit payment within ten (10) days from the
execution of the contracts.[10]

Enriquez sent notice to Litonjua that they would be constrained to entertain bids
from other parties in view of Litonjua’s failure to make a firm commitment for the
shares of Swedish Match in Phimco by 30 June 1990.[11]

In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they
signed a conditional contract with a local group for the disposal of Phimco. He told
Litonjua that his bid would no longer be considered unless the local group would fail
to consummate the transaction on or before 15 September1990.[12]

Apparently irked by SMAB’s decision to junk his bid, Litonjua promptly responded
by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that,
for all intents and purposes, the US$36 million bid which he submitted on 21 May
1990 was their final bid based on the financial statements for the year 1989. He
pointed out that they submitted the best bid and they were already finalizing the
terms of the sale. He stressed that they were firmly committed to their bid of
US$36 million and if ever there would be adjustments in the bid amount, the
adjustments were brought about by SMAB’s subsequent disclosures and validated
accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares
was actually being sold and not one-hundred percent (100%).[13]

More than two months from receipt of Litonjua’s last letter, Enriquez sent a fax
communication to the former, advising him that the proposed sale of SMAB’s shares
in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to
resume negotiations with SMAB for the sale of Phimco shares. He indicated that
SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of
fifteen (15) days from 26 September 1990 subject to the terms contained in the
letter. Additionally, Enriquez clarified that if the sale would not be completed at the
end of the fifteen (15)-day period, SMAB would enter into negotiations with other
buyers.[14]

Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new
set of terms and conditions for the sale of the Phimco shares. He emphasized that
the new offer constituted an attempt to reopen the already perfected contract of
sale of the shares in his favor. He intimated that he could not accept the new terms
and conditions contained therein.[15]

On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial

Court (RTC) of Pasig a complaint for specific performance with damages, with a
prayer for the issuance of a writ of preliminary injunction, against defendants, now
petitioners. The individual defendants were sued in their respective capacities as
officers of the corporations or entities involved in the aborted transaction.

Aside from the averments related to their principal cause of action for specific
performance, respondents alleged that the Phimco management, in utter bad faith,
induced SMAB to violate its contract with respondents. They contended that the
Phimco management took an interest in acquiring for itself the Phimco shares and
that petitioners conspired to thwart the closing of such sale by interposing various
obstacles to the completion of the acquisition audit.[16] Respondents claimed that
the Phimco management maliciously and deliberately delayed the delivery of
documents to Laya Manabat Salgado & Co. which prevented them from completing
the acquisition audit in time for the deadline on 30 June 1990 set by
petitioners.[17] Respondents added that SMAB’s refusal to consummate the
perfected sale of the Phimco shares amounted to an abuse of right and constituted
conduct which is contrary to law, morals, good customs and public policy.[18]

Respondents prayed that petitioners be enjoined from selling or transferring the

Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of
any person or entity other than respondents, and that any such sale to third parties
be annulled and set aside. Respondents also asked that petitioners be ordered to
execute all documents or instruments and perform all acts necessary to
consummate the sales agreement in their favor.

Traversing the complaint, petitioners alleged that respondents have no cause of

action, contending that no perfected contract, whether verbal or written, existed
between them. Petitioners added that respondents’ cause of action, if any, was
barred by the Statute of Frauds since there was no written instrument or document
evidencing the alleged sale of the Phimco shares to respondents.

Petitioners filed a motion for a preliminary hearing of their defense of bar by the
Statute of Frauds, which the trial court granted. Both parties agreed to adopt as
their evidence in support of or against the motion to dismiss, as the case may be,
the evidence which they adduced in support of their respective positions on the writ
of preliminary injunction incident.

In its Order dated 17 April 1991, the RTC dismissed respondents’ complaint.[19] It
ruled that there was no perfected contract of sale between petitioners and
respondents. The court a quo said that the letter dated 11 June 1990, relied upon
by respondents, showed that petitioners did not accept the bid offer of respondents
as the letter was a mere invitation for respondents to conduct a due diligence
process or pre-acquisition audit of Phimco’s match and forestry operations to
enable them to submit their final offer on 30 June 1990. Assuming that
respondent’s bid was favored by an oral acceptance made in private by officers of
SMAB, the trial court noted, such acceptance was merely preparatory to a formal
acceptance by the SMAB—the acceptance that would eventually lead to the
execution and signing of the contract of sale. Moreover, the court noted that
respondents failed to submit their final bid on the deadline set by petitioners.

Respondents appealed to the Court of Appeals, assigning the following errors:

A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT

ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT
IN ITS ENTIRETY FOR “LACK OF A VALID CAUSE OF ACTION” WITHOUT THE
BENEFIT OF A FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS.
 B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS’ CAUSE OF
ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED,
INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL.

C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS’ CAUSE OF

ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN
SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL,
INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION.

D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY

TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS,
ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS’ RIGHT TO DUE PROCESS.[20]

After assessing the respective arguments of the parties, the Court of Appeals
reversed the trial court’s decision. It ruled that the series of written
communications between petitioners and respondents collectively constitute a
sufficient memorandum of their agreement under Article 1403 of the Civil Code;
thus, respondents’ complaint should not have been dismissed on the ground that it
was unenforceable under the Statute of Frauds. The appellate court opined that any
document or writing, whether formal or informal, written either for the purpose of
furnishing evidence of the contract or for another purpose which satisfies all the
Statute’s requirements as to contents and signature would be sufficient; and, that
two or more writings properly connected could be considered together. The
appellate court concluded that the letters exchanged by and between the parties,
taken together, were sufficient to establish that an agreement to sell the disputed
shares to respondents was reached.

The Court of Appeals clarified, however, that by reversing the appealed decision it
was not thereby declaring that respondents are entitled to the reliefs prayed for in
their complaint, but only that the case should not have been dismissed on the
ground of unenforceability under the Statute of Frauds. It ordered the remand of
the case to the trial court for further proceedings.

Hence, this petition.

Petitioners argue that the Court of Appeals erred in failing to consider that the
Statute of Frauds requires not just the existence of any note or memorandum but
that such note or memorandum should evidence an agreement to sell; and, that in
this case, there was no word, phrase, or statement in the letters exchanged
between the two parties to show or even imply that an agreement had been
reached for the sale of the shares to respondent.

Petitioners stress that respondent Litonjua made it clear in his letters that the
quoted prices were merely tentative and still subject to further negotiations
between him and the seller. They point out that there was no meeting of the minds
on the essential terms and conditions of the sale because SMAB did not accept
respondents’ offer that consideration would be paid in Philippine pesos. Moreover,
Litonjua signified their inability to submit their final bid on 30 June 1990, at the
same time stating that the broad terms and conditions described in their meeting
were inadequate for them to make a response at that time so much so that he
would have to await the corresponding specifics. Petitioners argue that the
foregoing circumstances prove that they failed to reach an agreement on the sale of
the Phimco shares.

In their Comment, respondents maintain that the Court of Appeals correctly ruled
that the Statute of Frauds does not apply to the instant case. Respondents assert
that the sale of the subject shares to them was perfected as shown by the following
circumstances, namely: petitioners assured them that should they increase their
bid, the sale would be awarded to them and that they did in fact increase their
previous bid of US$30.6 million to US$36 million; petitioners orally accepted their
revised offer and the acceptance was relayed to them by Rene Dizon; petitioners
directed them to proceed with the acquisition audit and to submit a comfort letter
from the United Coconut Planters’ Bank (UCPB); petitioner corporation confirmed its
previous verbal acceptance of their offer in a letter dated 11 June 1990; with the
prior approval of petitioners, respondents engaged the services of Laya, Manabat,
Salgado & Co., an independent auditing firm, to immediately proceed with the
acquisition audit; and, petitioner corporation reiterated its commitment to be bound
by the result of the acquisition audit and promised to reimburse respondents’ cost
to the extent of US$20,000.00. All these incidents, according to respondents,
overwhelmingly prove that the contract of sale of the Phimco shares was perfected.

Further, respondents argued that there was partial performance of the perfected
contract on their part. They alleged that with the prior approval of petitioners, they
engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition
audit. They averred that petitioners agreed to be bound by the results of the audit
and offered to reimburse the costs thereof to the extent of US$20,000.00.
Respondents added that in compliance with their obligations under the contract,
they have submitted a comfort letter from UCPB to show petitioners that the bank
was willing to finance the acquisition of the Phimco shares.[21]

The basic issues to be resolved are: (1) whether the appellate court erred in
reversing the trial court’s decision dismissing the complaint for being unenforceable
under the Statute of Frauds; and (2) whether there was a perfected contract of sale
between petitioners and respondents with respect to the Phimco shares.

The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil
Code[22] requires certain contracts enumerated therein to be evidenced by some
note or memorandum in order to be enforceable. The term “Statute of Frauds” is
descriptive of statutes which require certain classes of contracts to be in writing.
The Statute does not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable.[23] Evidence of the agreement cannot be
received without the writing or a secondary evidence of its contents.

The Statute, however, simply provides the method by which the contracts
enumerated therein may be proved but does not declare them invalid because they
are not reduced to writing. By law, contracts are obligatory in whatever form they
may have been entered into, provided all the essential requisites for their validity
are present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable.[24] Consequently, the effect of
non-compliance with the requirement of the Statute is simply that no action can be
enforced unless the requirement is complied with.[25] Clearly, the form required is
for evidentiary purposes only. Hence, if the parties permit a contract to be proved,
without any objection, it is then just as binding as if the Statute has been complied
with.[26]

The purpose of the Statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses, by
requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.[27]

However, for a note or memorandum to satisfy the Statute, it must be complete in

itself and cannot rest partly in writing and partly in parol. The note or memorandum
must contain the names of the parties, the terms and conditions of the contract,
and a description of the property sufficient to render it capable of
identification.[28] Such note or memorandum must contain the essential elements of
the contract expressed with certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or within which it is
connected, without resorting to parol evidence.[29]

Contrary to the Court of Appeals’ conclusion, the exchange of correspondence

between the parties hardly constitutes the note or memorandum within the context
of Article 1403 of the Civil Code. Rossi’s letter dated 11 June 1990, heavily relied
upon by respondents, is not complete in itself. First, it does not indicate at what
price the shares were being sold. In paragraph (5) of the letter, respondents were
supposed to submit their final offer in U.S. dollar terms, at that after the completion
of the due diligence process. The paragraph undoubtedly proves that there was as
yet no definite agreement as to the price. Second, the letter does not state the
mode of payment of the price. In fact, Litonjua was supposed to indicate in his final
offer how and where payment for the shares was planned to be made.[30]

Evidently, the trial court’s dismissal of the complaint on the ground of

unenforceability under the Statute of Frauds is warranted.[31]
Even if we were to consider the letters between the parties as a sufficient
memorandum for purposes of taking the case out of the operation of the Statute
the action for specific performance would still fail.

A contract is defined as a juridical convention manifested in legal form, by virtue of

which one or more persons bind themselves in favor of another, or others, or
reciprocally, to the fulfillment of a prestation to give, to do, or not to do.[32] There
can be no contract unless the following requisites concur: (a) consent of the
contracting parties; (b) object certain which is the subject matter of the contract;
(c) cause of the obligation which is established.[33] Contracts are perfected by mere
consent, which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.[34]

Specifically, in the case of a contract of sale, required is the concurrence of three

elements, to wit: (a) consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price; (b) determinate subject matter, and (c) price
certain in money or its equivalent.[35] Such contract is born from the moment there
is a meeting of minds upon the thing which is the object of the contract and upon
the price.[36]

In general, contracts undergo three distinct stages, to wit: negotiation; perfection

or birth; and consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at the moment
of agreement of the parties. Perfection or birth of the contract takes place when the
parties agree upon the essential elements of the contract. Consummation occurs
when the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof.[37]

A negotiation is formally initiated by an offer. A perfected promise merely tends to

insure and pave the way for the celebration of a future contract. An imperfect
promise (policitacion), on the other hand, is a mere unaccepted offer.[38] Public
advertisements or solicitations and the like are ordinarily construed as mere
invitations to make offers or only as proposals. At any time prior to the perfection
of the contract, either negotiating party may stop the negotiation.[39] The offer, at
this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of
the withdrawal.[40]

An offer would require, among other things, a clear certainty on both the object and
the cause or consideration of the envisioned contract. Consent in a contract of sale
should be manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. A qualified acceptance constitutes a counter-offer.[41]
Quite obviously, Litonjua’s letter dated 21 May 1990, proposing the acquisition of
the Phimco shares for US$36 million was merely an offer. This offer, however, in
Litonjua’s own words, “is understood to be subject to adjustment on the basis of an
audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on
the final negotiation between ourselves.”[42]

Was the offer certain enough to satisfy the requirements of the Statute of Frauds?
Definitely not.

Litonjua repeatedly stressed in his letters that they would not be able to submit
their final bid by 30 June 1990.[43] With indubitable inconsistency, respondents later
claimed that for all intents and purposes, the US$36 million was their final bid. If
this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28
June 1990 that they would be in a position to submit their final bid only on 17 July
1990. The lack of a definite offer on the part of respondents could not possibly
serve as the basis of their claim that the sale of the Phimco shares in their favor
was perfected, for one essential element of a contract of sale was obviously
wanting—the price certain in money or its equivalent. The price must be certain,
otherwise there is no true consent between the parties.[44] There can be no sale
without a price.[45] Quite recently, this Court reiterated the long-standing doctrine
that the manner of payment of the purchase price is an essential element before a
valid and binding contract of sale can exist since the agreement on the manner of
payment goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.[46]

Granting arguendo, that the amount of US$36 million was a definite offer, it would
remain as a mere offer in the absence of evidence of its acceptance. To produce a
contract, there must be acceptance, which may be express or implied, but it must
not qualify the terms of the offer.[47] The acceptance of an offer must be unqualified
and absolute to perfect the contract.[48] In other words, it must be identical in all
respects with that of the offer so as to produce consent or meeting of the minds.[49]

Respondents’ attempt to prove the alleged verbal acceptance of their US$36 million
bid becomes futile in the face of the overwhelming evidence on record that there
was in the first place no meeting of the minds with respect to the price. It is
dramatically clear that the US$36 million was not the actual price agreed upon but
merely a preliminary offer which was subject to adjustment after the conclusion of
the audit of the company finances. Respondents’ failure to submit their final bid on
the deadline set by petitioners prevented the perfection of the contract of sale. It
was not perfected due to the absence of one essential element which was the price
certain in money or its equivalent.

At any rate, from the procedural stand point, the continuing objections raised by
petitioners to the admission of parol evidence[50] on the alleged verbal acceptance
of the offer rendered any evidence of acceptance inadmissible.

Respondents’ plea of partial performance should likewise fail. The acquisition audit
and submission of a comfort letter, even if considered together, failed to prove the
perfection of the contract. Quite the contrary, they indicated that the sale was far
from concluded. Respondents conducted the audit as part of the due diligence
process to help them arrive at and make their final offer. On the other hand, the
submission of the comfort letter was merely a guarantee that respondents had the
financial capacity to pay the price in the event that their bid was accepted by
petitioners.

The Statute of Frauds is applicable only to contracts which are executory and not to
those which have been consummated either totally or partially.[51] If a contract has
been totally or partially performed, the exclusion of parol evidence would promote
fraud or bad faith, for it would enable the defendant to keep the benefits already
derived by him from the transaction in litigation, and at the same time, evade the
obligations, responsibilities or liabilities assumed or contracted by him
thereby.[52] This rule, however, is predicated on the fact of ratification of the
contract within the meaning of Article 1405 of the Civil Code either (1) by failure to
object to the presentation of oral evidence to prove the same, or (2) by the
acceptance of benefits under them. In the instant case, respondents failed to prove
that there was partial performance of the contract within the purview of the
Statute.

Respondents insist that even on the assumption that the Statute of Frauds is
applicable in this case, the trial court erred in dismissing the complaint altogether.
They point out that the complaint presents several causes of action.

A close examination of the complaint reveals that it alleges two distinct causes of
action, the first is for specific performance[53] premised on the existence of the
contract of sale, while the other is solely for damages, predicated on the purported
dilatory maneuvers executed by the Phimco management.[54]

With respect to the first cause of action for specific performance, apart from
petitioners’ alleged refusal to honor the contract of sale—which has never been
perfected in the first place—respondents made a number of averments in their
complaint all in support of said cause of action. Respondents claimed that
petitioners were guilty of promissory estoppel,[55] warranty breaches[56] and tortious
conduct[57] in refusing to honor the alleged contract of sale. These averments are
predicated on or at least interwoven with the existence or perfection of the contract
of sale. As there was no such perfected contract, the trial court properly rejected
the averments in conjunction with the dismissal of the complaint for specific
performance.
However, respondents’ second cause of action due to the alleged malicious and
deliberate delay of the Phimco management in the delivery of documents necessary
for the completion of the audit on time, not being based on the existence of the
contract of sale, could stand independently of the action for specific performance
and should not be deemed barred by the dismissal of the cause of action predicated
on the failed contract. If substantiated, this cause of action would entitle
respondents to the recovery of damages against the officers of the corporation
responsible for the acts complained of.

Thus, the Court cannot forthwith order dismissal of the complaint without affording
respondents an opportunity to substantiate their allegations with respect to its
cause of action for damages against the officers of Phimco based on the latter’s
alleged self-serving dilatory maneuvers.

WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby

MODIFIED insofar as it declared the agreement between the parties enforceable
under the Statute of Frauds. The complaint before the trial court is ordered
DISMISSED insofar as the cause of action for specific performance is concerned.
The case is ordered REMANDED to the trial court for further proceedings with
respect to the cause of action for damages as above specified.

SO ORDERED.

Puno, J., (Chairman), Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Penned by Justice Pedro A. Ramirez, concurred in by Justices Pacita Cañizares-

[1]

Nye and Romeo J. Callejo, Sr.(now Associate Justice of this Court)

[2]
Rollo, pp.74-99.

[3]
Id. at 103.

[4]
Issued by Judge Armie E. Elma of the Regional Trial Court of Pasig.

[5]
Annex “A,” Rollo, p. 101.

[6]
Annex “B,” Id. at 104.

[7]
Annex “D,” Id. at 110.

[8]
Id. at 114-115.
[9]
Id. at 116-117.

[10]
Id. at 121.

[11]
Id. at 123.

[12]
Annex “K,” Rollo, p. 125.

[13]
Annex “L,” Id. at 126.

[14]
Annex “M,” Id. at 128.

[15]
Rollo, p. 130.

[16]
RTC Rollo, p. 17

[17]
Id. at 19.

[18]
Id. at 23.

[19]
The dispositive portion of the trial court’s decision reads:

“WHEREFORE, in view of all the foregoing considerations, this Court gives due
course to defendants’ (except Rene Dizon) affirmative defense of bar by the statute
of frauds. This case is ordered DISMISSED for lack of a valid cause of action with
costs against plaintiffs. The writ of preliminary injunction issued on January 14,
1991 is hereby dissolved.”

[20]
Rollo, pp. 81-82.

[21]
Id. at 164.

[22]
Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise

to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them, of such things in action, or
pay at the time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein;

(f) A representation as to the credit of a third person.

[23]
Rosencor Development Corporation v. Court of Appeals, G.R. No. 140479, March
8, 2001, 354 SCRA 119.

[24]
Article 1356, Civil Code.

[25]
Gallemit v. Tabilaran, 20 Phil. 241 (1911).

[26]
Domalagan v. Bolifer, 33 Phil. 471 (1915-1916).

Asia Productions Co., Inc. v. Pano, et. al., G.R. No. 51058, January 27, 1992,
[27]

205 SCRA 458.

Litonjua v. Fernandez, et.al., G.R. No. 148116, April 14, 2004, citing Holsz v.
[28]

Stephen, 200 N.E. 601(1936).

[29]
Ibid., citing Franklin Sugar Refining Co. v. Egerton, 288 Fed. Rep. 698(1923);
Williams v. Morris, 95 U.S. 360 (1877).

[30]
Annex “E,” Rollo, p. 114.

[31]
Rule 16, par. (i), Rules of Civil Procedure.

[32]
4 Sanchez Roman 146.
[33]
Article 1318, Civil Code.

Gomez v. Court of Appeals, G. R. No. 120747, September 21, 2000, 340 SCRA
[34]

720.

[35]
Roble v. Arbasa, 414 Phil. 434 (2001).

[36]
Laforteza v. Machuca, 389 Phil. 167 (2000); Katipunan v. Katipunan, Jr., 425
Phil. 818 (2002); Londres v. Court of Appeals, G.R. No. 136427, December 17,
2002, 394 SCRA 133.

[37]
Bugatti v. Court of Appeals, G.R. No. 138113, October 17, 2000, 343 SCRA 335.

[38]
8 Manresa, 5th Ed., Bk. 2, pp. 268-270 cited in Jurado, Comments and
Jurisprudence on Obligations and Contracts, 1993 Ed., p. 354.

[39]
Ang Yu v. Asuncion, G.R. No. 109125, December 2, 1994, 238 SCRA 1994.

[40]
Laudico v. Arias, 43 Phil. 270 (1922).

[41]
Article 1319, Civil Code.

[42]
Annex “D,” Rollo, p. 111.

[43]
Annexes “D” & “F,” Id. at 111; 116.

[44]
See 10 Manresa 45-46.

[45]
Villanueva v. Court of Appeals, 334 Phil. 750 (1997).

[46]
Montecillo v. Reynes, 434 Phil. 456 (2002), citing San Miguel Properties
Philippines, Inc. v. Huang, G.R. No. 137290, July 31, 2000, 336 SCRA 737; Navarro
v. Sugar Producers Cooperative Marketing Association, Inc., 1 SCRA 1181 (1961);
Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995).

[47]
Jardine Davies, Inc. v. Court of Appeals, 389 Phil. 204 (2000).

[48]
Metropolitan Bank and Trust Company v. Tonda, 392 Phil. 797 (2000).

[49]
Limketkai Sons Milling, Inc. v. Court of Appeals, 325 Phil. 967 (1996).

[50]
TSN, January 3, 1991, pp. 12, 47-48, 80-81.
 Arroyo vs. Azur, 76 Phil. 493 (1946); Almirol v. Monserrat, 48 Phil. 67 (1925);
[51]

Asturias Sugar Central, Inc. v. Montinola, 69 Phil. 725 (1940).

[52]
Carbonnel v. Poncio, 103 Phil. 655 (1958).

[53]
See e.g., par. 3.2, Complaint; Vide, RTC Records, p. 21.

[54]
See e.g., pars. 2.11, 2.11.1,Complaint; Vide, RTC Records, p. 17.

[55]
See e.g., par. 4.1, Complaint; Vide, RTC Records, p. 22.

[56]
See e.g., par. 2.8.1.3, 2.9, Complaint; Vide, RTC Records, pp. 16 & 18.

[57]
See e.g., par. 5.1.1, 5.1.2, Complaint; Vide, RTC Records, p. 23.

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103 Phil. 655

[ G. R. No. L-11231, May 12, 1958 ]

ROSARIO CARBONNEL, PLAINTIFF AND APPELLANT, VS. JOSE
PONCIO, RAMON INFANTE, AND EMMA INFANTE,
DEFENDANTS AND APPELLEES.

DECISION

CONCEPCION, J.:
The issue in this case is whether the Statute of Frauds is applicable thereto.

Plaintiff Rosario Carbonnel alleges, in her second amended complaint, filed with the
Court of First Instance of Rizal, that, on January 27, 1955, she purchased from
defendant Jose Poncio, at P9.50 a square meter, a parcel of land of about 195
square meters, more or less, located in San Juan del Monte, Rizal, known as Lot
No. 13-B of subdivision plan Psd-19567, and more particularly described in Transfer
Certificate of Title No. 5040 (now No. 37842), excluding the improvements thereon;
that plaintiff paid P247.26 on account of the price and assumed Poncio's obligation
with the Republic Savings Bank amounting to P1,177.48, with the understanding
that the. balance would be payable upon execution of the corresponding deed of
conveyance; that one of the conditions of the sale was that Poncio would continue
staying in said land for one year, as stated in a document signed by him (and later
marked as Exhibit A), a translation of which was attached to the said complaint;
that Poncio refuses to execute the corresponding deed of sale, despite repeated
demands; that plaintiff has thereby suffered damages in the sum of P5,000, aside
from attorney's fees amounting to P1.000; that Poncio has conveyed the same
property to defendants Ramon R. Infante and Emma L. Infante, who knew of the
first sale to plaintiff; and that the Infantes had thereby caused damages to plaintiff
in the sum of P5,000.

Plaintiff prayed, therefore, that she be declared owner of the land in. question; that
the sale to the Intfantes be annulled; that Poncio be required to execute the
corresponding deed of conveyance in plaintiff's favor; that the Register of Deeds of
Rizal be directed to issue the corresponding title in plaintiff's name; and that
defendants be sentenced to pay damages.

Defendants moved to dismiss said complaint upon the ground that plaintiff's claim
is unenforceable under the Statute of Frauds, and that said pleading does not state
facts sufficient to constitute a cause of action. The motion was denied, "without
prejudice to considering, when this case is decided on the merits, whether the same
falls under the Statute of Frauds."

Thereafter, the Infantes filed an answer denying most of the allegations of said
complaint and alleged, by way of special defense, that they purchased the land in
question in good faith, for value, and without knowledge of the alleged sale to
plaintiff; and that plaintiff's claim is unenforceable under the Statute of Frauds.
They, likewise, set up counterclaims for damages.

In his answer, Poncio denied specifically some allegations of said complaint and
alleged that he had no knowledge sufficient to form a belief as to the truth of the
other averments therein. By way of special defenses, he alleged that he had
consistently turned down several offers, made by plaintiff, to buy the land in
question, at P15 a square meter, for he believes that it is worth not lessthan P20 a
square meter; that Mrs. Infante, likewise, tried to buy the land at P15 a square
meter; that, on or about January 27, 1955, Poncio was advised by plaintiff that
should she decide to buy the property at P20 a square meter, she would allow him
to remain in the property for one year; that plaintiff then induced Poncio to sign a
document, copy of which is probably the one appended to the second amended
complaint; that Poncio signed it "relying upon the statement of the plaintiff that the
document was a permit for him to remain in the premises in the event that
defendant decided to sell the property to the plaintiff at P20 a square meter"; that
on January 30, 1955, Mrs. Infante improved her offer and he agreed to sell the land
and its improvements to her for P3,535; that Poncio has not lost "his mind," to sell
his property, worth at least P4,000, for the paltry sum of P1,177.48, the amount of
his obligation to the Republic Savings Bank; and that plaintiff's action is barred by
the Statute of Frauds. Poncio similarly set up a counterclaim for damages.

As the case came up for trial, on February 23, 1956, plaintiff introduced the
testimony of one Constancio Meonada, who said that he is janitor of the Sto.
Domingo Church and a high school, as well as auto-mechanic, graduate; that he
has been and still is a paying boarder in plaintiff's house; that Poncio is his
townmate, both being from Mahatao, Batanes; that, after making a rough draft,
based upon data furnished by plaintiff, he typed Exhibit A, which is in the Batanes
dialect; that, thereafter, Poncio came to plaintiff's house, where he was shown
Exhibit A; that after the witness had read its contents to Poncio and given him a
copy thereof, Poncio signed Exhibit A and so did the plaintiff; that Meonada likewise
signed at the foot of Exhibit A, as attesting witness; and that translated freely into
English, Exhibit A, reads as follows:

"From this date, January 27, Jose Poncio may stay in this lot that I bought from him
until one year without payment. After that one year and he cannot find any place
where to transfer his house, he can also stay in this lot and he will pay according to
agreement." (t.s.n., p. 4.)

Then, taking the witness stand, plaintiff testified that she has known Poncio since
childhood, he being related to her mother; that Poncio's lot adjoins her lot, in San
Juan, Rizal; that one day Poncio told her that he wanted to sell his property; that,
after both had agreed on its price, he said that his lot is mortgaged to the RepubHic
Savings Bank; and that, at noon time, on the same day, he came back stating that
both would "go to the bank to pay the balance in arrears," At this juncture, defense
counsel moved to strike out the statement of the witness, invoking, in support of
the motion, the Statute of Frauds. After an extended discussion, the parties agreed,
to submit memoranda and the hearing was suspended. Later on, the lower court
issued an order dismissing plaintiff's complaint, without costs, upon the ground that
her cause of action is unenforceable under the Statute of Frauds. The counterclaims
were, also, dismissed. Hence, this appeal by plaintiff.

We are of the opinion and so hold that the appeal is well taken. It is well settled in
this jurisdiction that the Statute of Frauds is applicable only to executory contracts
(Facturan vs. Sabanal, 81 Phil., 512), not to contracts that are totally or partially
performed (Almirol, et al., vs. Monserrat, 48 Phil., 67, 70; Robles vs. Lizarraga
Hermanos, 50 Phil., 387; Diana vs. Macalibo, 74 Phil., 70).

"Subject to a rule to the contrary followed in a few jurisdictions, it is the accepted

view that part performance of a parol contract for the sale of real estate has the
effect, subject to certain conditions concerning the nature and extent of the acts
constituting performance and the right to equitable relief generally, of taking such
contract from the operation of the statute of frauds, so that chancery may decree
its specific performance or grant other equitable relief. It is well settled in Great
Britain and in this country, with the exception of a few states, that a sufficient part
performance by the purchaser under a parol contract for the sale of real estate
removes the contract from the operation of the statute of frauds." (49 Am. Jur.
722-723.)

In the words of former Chief Justice Moran: "The reason is simple. In executory
contracts there is a wide field for fraud because unless they be in writing there is no
palpable evidence of the intention of the contracting" parties. The statute has
precisely been enacted to prevent fraud." (Comments on the Rules of Court, by
Moran, Vol. III [1957 ed.], p. 178.) However, if a contract has been totally or
partially performed, the exclusion of parol evidence would promote fraud or bad
faith, for it would enable the defendant to keep the benefits already derived by him
from the transaction in litigation, and, at the same time, evade the obligations,
responsibilities or liabilities assumed or contracted by him thereby.

For obvious reasons, it is not enough for a party to allege partial performance in
order to hold that there has been such performance and to render a decision
declaring that the Statute of Frauds is inapplicable. But neither is such party
required to establish such partial performance by documentary proof before he
could have the opportunity to introduce oral testimony on the transaction. Indeed,
such oral testimony would usually be unnecessary if there were documents proving
partial performance. Thus, the rejection of any and all testimonial evidence on
partial performance, would nullify the rule that the Statute of Frauds is inapplicable
to contracts which have been partly executed, and lead to the very evils that the
statute seeks to prevent.

"The true basis of the doctrine of part performance according to the overwhelming
weight of authority, is that it would be a fraud upon the plaintiff if the defendant
were permitted to escape performance of his part of the oral agreement after he
has permitted the plaintiff to perform in reliance upon the agreement. The oral
contract is enforced in harmony with the principle that courts of equity will not
allow the statute of frauds to be used as an instrument of fraud. In other words, the
doctrine of part performance was established for the same purpose for which the
statute of frauds itself was enacted, namely, for the prevention of fraud, and arose
from the necessity of preventing the statute from becoming an agent of fraud for it
could not have been the intention of the statute to enable any party to commit a
fraud with impunity." (49 Am. Jur., 725-726; italics supplied.)

When the party concerned has pleaded partial performance, such party is entitled
to a reasonable chance to establish by parol evidence the truth, of this allegation,
as well as the contract itself. "The recognition of the exceptional effect of part
performance in taking an oral contract out of the statute of frauds, involves the
principle that oral evidence is admissible in such cases to prove both the contract
and the part performance of the contract" (49 Am. Jur., 927).
Upon submission of the case, for decision on the merits, the Court should
determine whether said allegation is true, bearing in mind that parol evidence is
easier to concoct and more likely to be colored or inaccurate than documentary
evidence. If the evidence of record fails to prove clearly that there has been partial
performance, then the Court should apply the Statute of Frauds, if the cause of
action involved falls within the purview thereof. If the Court is, however, convinced
that the obligation in question has been partly executed and that the allegation of
partial performance was not resorted to as a devise to circumvent the Statute, then
the same should not be applied.

Apart from the foregoing, there are in the case at bar several circumstances
indicating that plaintiff's claim might not be entirely devoid of factual basis. Thus,
for instance, Poncio admitted in his answer that plaintiff had offered several times
to purchase his land.

Again, there is Exhibit A, as document signed by the defendant. It is in the Batanes

dialect, which, according to plaintiff's uncontradicted evidence, is the one spoken by
Poncio, he being a native of said region. Exhibit A states that Poncio would stay in
the land sold by him to plaintiff for one year, from January 27, 1955, free of
charge, and that, if he cannot find a place where to transfer his house thereon, he
may remain in said lot under such terms as may be agreed upon. Incidentally, the
allegation in Poncio's answer to the effect that he signed Exhibit A under the belief
that it "was a permit for him to remain in the premises in the event" that "he
decided to sell the property" to the plaintiff at P20 a sq. m." is, on its face,
somewhat difficult to believe. Indeed, if he had not decided as yet to sell the land
to plaintiff, who, had never increased her offer of P15 a square meter, there was no
reason for Poncio to get said permit from her. Upon the other hand, if plaintiff
intended to mislead Poncio, she would have caused Exhibit A to be drafted,
probably in English, instead of taking the trouble of seeing to it that it was written
precisely in his native dialect, the Batanes. Moreover, Poncio's signature on Exhibit
A suggests that he is neither illiterate nor so ignorant as to sign a document
without reading its contents, apart from the fact that Meonada had read Exhibit A to
him and given him a copy thereof, before he signed thereon, according to
Meonada's uncontradicted testimony.

Then, also, defendants say in their brief:

"The only allegation In plaintiff's complaint that bears any relation to her claim that
there has been partial performance of the supposed contract of sale, is the notation
of the sum of P247.26 in the bank book of defendant Jose Poncio. The noting or
jotting down of the sum of P247.26 in the bank book of Jose Poncio does not prove
the fact that said amount was the purchase price of the property in question. For all
we knew, the sum of P247.26 which plaintiff claims to have paid to the Republic
Savings Bank for the account of the defendant, assuming that the money paid to
the Republic Sayings Bank came from the plaintiff, was the result of some usurious
loan or accommodation, rather than earnest money or part payment of the land.
Neither is a competent or satisfactory evidence to prove the conveyance of the land
in question the fact that the bank book account of Jose Poncio happens to be in the
possession of the plaintiff." (Defendants-Appellees' brief, pp. 25-26.)

How shall we know why Poncio's bank deposit book is in plaintiff's possession, or
whether there is any relation between the P247.26 entry therein and the partial
payment of P247.26 allegedly made by plaintiff to Poncio on account of the price of
his land, if we do not allow the plaintiff to explain it on the witness stand? Without
expressing any opinion on the merits of plaintiff's claim, it is clear, therefore, that
she is entitled, legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended
complaint. Wherefore, the order appealed from is hereby set aside, and let this
case be remanded to the lower court for further proceedings not inconsistent with
this decision, with the costs of this instance against defendants-appellees. It is so
ordered.

Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.
B. L., Endencia, and Felix, JJ., concur.

Source: Supreme Court E-Library | Date created: September 23, 2014

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Supreme Court E-Library

Supreme Court of Alaska.

VALDEZ FISHERIES DEVELOPMENT ASSOCIATION, INC., Appellant/Cross-
Appellee, v. ALYESKA PIPELINE SERVICE COMPANY, Appellee/Cross-
Appellant.

Sea Hawk Seafoods, Inc., Appellant/Cross-Appellee, v. Alyeska Pipeline Service

Company, Appellee/Cross-Appellant.

Nos. S-8280, S-8549.

Decided: April 19, 2002
Before:  FABE, Chief Justice, MATTHEWS, EASTAUGH, BRYNER, and CARPENETI, Justices. Rebecca S.
Copeland,Koval & Featherly, P.C., Anchorage, for Appellant/Cross-Appellee Valdez Fisheries
Development Association, Inc. Michael T. Schein, Maltman Reed North Ahrens & Malnati, John G.
Young, Young deNormandie & Oscarsson, and Kevin P. Sullivan, Sullivan & Thoreson, Seattle,
Washington for Appellant/Cross-Appellee Sea Hawk Seafoods, Inc. James E. Torgerson and Andrew F.
Behrend, Heller Ehrman White & McAuliffe LLP, Anchorage, for Appellee/Cross-Appellant Alyeska
Pipeline Service Company.

OPINION

I. INTRODUCTION

We address here claims arising from a letter sent and statements made by Alyeska Pipeline Service
Company during negotiations for a proposed three-way transaction involving Alyeska, Sea Hawk
Seafoods, Inc., and Valdez Fisheries Development Association, Inc. Because Valdez Fisheries' complaint
against Alyeska did not state a claim on which relief could be granted, we hold that it was not error to
dismiss Valdez Fisheries' claims. And because there are no genuine issues of material fact, we hold that
it was not error to dismiss Sea Hawk's claims on summary judgment. We therefore affirm in all
respects.

II. FACTS AND PROCEEDINGS

In December 1993 James McHale, an Alyeska Pipeline Service Company manager, made a presentation to
the Valdez City Council asking the city to provide a wildlife rehabilitation center for Alyeska's use in event
of an oil spill.1 In a later city council meeting, Alyeska faced strong opposition from the business
community, which wanted Alyeska to obtain the center from the private sector rather than the city.
Raymond Cesarini, president of Sea Hawk Seafoods, then suggested to McHale that Alyeska buy Sea
Hawk's plant for use as a rehabilitation center. McHale said that Alyeska “was already thinking
favorably of using” Valdez Fisheries Development Association “for the project” and suggested that Sea
Hawk contact Valdez Fisheries.

Cesarini then offered to sell Sea Hawk's plant to Valdez Fisheries so Valdez Fisheries could use the plant
in its proposal to Alyeska. In January 1994 Cesarini again spoke with Alyeska's McHale. McHale again
“stated that Alyeska was thinking favorably of using [Valdez Fisheries] for the project” and suggested that
Cesarini speak with Valdez Fisheries about a “ ‘win, win’ arrangement whereby Sea Hawk would sell its
processing plant to [Valdez Fisheries] and [Valdez Fisheries] in turn would lease the plant to Alyeska.”
McHale described the arrangement as mutually beneficial because it would allow Alyeska to meet its
environmental obligations, Sea Hawk to absolve itself of existing liabilities, and Valdez Fisheries to have a
source of income to help support its fish hatchery operations.

Cesarini met with McHale for a third time in mid-January 1994 and expressed concern about selling the
plant to Valdez Fisheries rather than directly to Alyeska because of Valdez Fisheries' financial problems.
Cesarini declared that McHale “confirmed that [Valdez Fisheries] would get the Alyeska contract, utilizing
the Sea Hawk plant.” Cesarini later declared that McHale “also promised me that, if for any reason
Alyeska did not lease the Sea Hawk plant from [Valdez Fisheries], ․ Alyeska would lease the Sea Hawk
plant directly from Sea Hawk on the same terms and conditions.”

In January 1994 Alyeska sent many companies, including Valdez Fisheries, a letter soliciting proposals for
the wildlife rehabilitation center. Soon thereafter Valdez Fisheries and Sea Hawk signed an agreement
for the sale of the Sea Hawk facility to Valdez Fisheries for $2.5 million, contingent upon Alyeska
awarding the wildlife rehabilitation center contract to Valdez Fisheries. The Sea Hawk-Valdez Fisheries
sales agreement was not to become “effective” until Valdez Fisheries gave Sea Hawk written notice that
Alyeska had approved Valdez Fisheries' proposal to lease the property to Alyeska as a wildlife
rehabilitation center. The contract permitted Sea Hawk to revoke the agreement before the effective
date upon five-days notice. After the effective date, Sea Hawk would no longer be able to revoke the
agreement, but the purchase price would increase $500 per day until closing.

Valdez Fisheries submitted a wildlife rehabilitation center proposal to Alyeska on January 25, 1994. In
April 1994 Alyeska informed all bid applicants, including Valdez Fisheries, that it was “unable to select a
contractor from the proposals received”;  it invited bidders to “reconsider the cost proposed and if [their]
review result[ed] in a cost reduction, [to] please submit a revised cost proposal.” Valdez Fisheries then
submitted a revised proposal, offering three alternative leases, a five-year lease at $43,000 per month, a
seven-year lease at $40,000 per month, or a ten-year lease at $35,000 per month.2

By letter of May 6, 1994 Alyeska responded to Valdez Fisheries' “bid submittals” stating:

We have completed our review of the revised proposals received in response to our invitation TAPS/5890
for A150 Wildlife Rehabilitation Center.

This is to inform you that based on a thorough evaluation of all factors, you have been selected as the
winning bidder. Your proposal was deemed to best meet our requirements for this facility.

We intend to begin the process of negotiating a contract as soon as possible. For your planning
purposes, we would like to begin discussions the week of May 16, 1994. You will be contacted by
telephone to schedule the place and time to meet.

We look forward to a successful association between our two companies. This facility will be a welcome
addition to our oil spill contingency program.[[3]

(Emphasis added.)

Valdez Fisheries faxed a copy of Alyeska's letter to Sea Hawk;  Valdez Fisheries and Sea Hawk thereafter
acted as if the effective date of their contract for sale had been triggered.

In June 1994 Alyeska and Valdez Fisheries began meeting to negotiate the contract. Valdez Fisheries
prepared a draft of the lease agreement and sent it to Alyeska to serve as a framework for the meetings to
follow. But at a July 7, 1994 meeting, Alyeska advised Valdez Fisheries that it was reanalyzing the costs
of the wildlife rehabilitation center and declined to discuss further the finalization of the lease agreement.
At this meeting, Alyeska also asked Valdez Fisheries about “the status of [the] negotiations” with Sea
Hawk.

In a July 29, 1994 letter, Alyeska advised Valdez Fisheries not to expend funds on developing the center
until Alyeska notified it to proceed. The letter also included a revised program and facility space
requirements. On August 8, 1994 Alyeska sent Valdez Fisheries a letter stating that Alyeska had “chosen
to pursue other avenues to accomplish our objective” and that “further negotiations are unnecessary.”

Sea Hawk sued Valdez Fisheries alleging breach of contract and promissory estoppel. Valdez Fisheries
answered and filed a third-party complaint against Alyeska, claiming, among other things, breach of
contract and promissory estoppel. Sea Hawk then asserted direct claims against Alyeska. Superior
Court Judge John Reese ultimately dismissed all of Valdez Fisheries' claims against Alyeska under Alaska
Civil Rule 12(b)(6), and granted summary judgment to Alyeska on Sea Hawk's claims. The case between
Valdez Fisheries and Sea Hawk went to trial, and the jury returned a large verdict for Sea Hawk. Sea
Hawk and Valdez Fisheries have since settled their disputes, leaving the Sea Hawk-Alyeska disputes and
the Valdez Fisheries-Alyeska disputes.

Valdez Fisheries appeals the Rule 12(b)(6) dismissal of its contract and promissory estoppel claims
against Alyeska, the denial of leave to amend the third-party complaint to assert newly discovered claims,
the refusal to sanction Alyeska for improper discovery conduct, and the limitation of Valdez Fisheries'
damages to its out-of-pocket costs in negotiating with Alyeska. Sea Hawk appeals the summary
judgment dismissing its claims of promissory estoppel, negligent misrepresentation and omission, third-
party beneficiary, and breach of duty to negotiate in good faith. Alyeska appeals the superior court's
denial of Alyeska's request for an enhanced attorney's fees award.

III. DISCUSSION

A. Standard of Review
 We review the dismissal of Valdez Fisheries' claims for failure to state a claim de novo. 4 We “only
consider the material contained in the pleadings” of Valdez Fisheries,5 construing the third-party
complaint against Alyeska in the light most favorable to Valdez Fisheries, and presume the pleading's
allegations to be true.6 We will affirm the dismissal of Valdez Fisheries' third-party complaint for failure
to state a claim only if “it appears beyond doubt” that Valdez Fisheries can prove no set of facts which
would entitle them to relief.7

We review the dismissal of Sea Hawk's claim on summary judgment de novo. 8 A summary judgment
movant must establish that there “are no genuine issues of material fact and that it is entitled to judgment
as a matter of law.” 9 We draw all reasonable inferences in favor of Sea Hawk-the nonmoving party.10

B. It Was Not Error To Dismiss Valdez Fisheries' Contract Claim Under Civil Rule 12(b)(6).

The superior court granted Alyeska's Civil Rule 12(b)(6) motion and dismissed Valdez Fisheries' contract
claim, holding that no contract was formed. Valdez Fisheries argues that this was error because its
third-party complaint against Alyeska alleged an agreement with terms that are sufficiently definite and
certain for contract formation.

Rule 12(b)(6) dismissal is appropriate where the complaint, given the benefit of all reasonable
inferences, “presents no set of facts justifying recovery.” 11 A valid contract requires “unequivocal
acceptance by the offeree.” 12 We therefore look to see whether Valdez Fisheries' third-party complaint
directly or inferentially contains any factual allegations which could be considered an unequivocal
expression of acceptance.

The pertinent allegations are found in the text of Alyeska's May 6, 1994 “winning bid” letter, set out
verbatim in the third-party complaint.13 The letter's second paragraph contains the language most
strongly supporting Valdez Fisheries' contract claim. It states, “you have been selected as the winning
bidder.” But this language does not unequivocally express acceptance because it is susceptible to at least
two alternative interpretations. These words could mean either “we accept your bid as written,” or “we
have chosen you as the contractor with whom we will negotiate.” The remainder of the letter fully
resolves this ambiguity. The letter's next paragraph, also set out in the third-party complaint, states that
“[w]e intend to begin the process of negotiating a contract as soon as possible.” This passage requires a
conclusion that Alyeska was not communicating an unequivocal acceptance of a Valdez Fisheries' offer.

Moreover, Valdez Fisheries' proposal contained three alternative lease proposals that differed
significantly with respect to the duration and monthly rent for any lease. Even if we were to interpret
Alyeska's letter to say unequivocally that “we accept your offer,” we could not say which of the three offers
it was accepting, and whether Alyeska was agreeing to lease the property for five years, seven years, or ten
years, with monthly rent payments of $43,000, $40,000, or $35,000, respectively. Duration and price
are important contract terms.14 Such great differences in important contract terms preclude finding a
meeting of minds.15 The significant differences in the alternatives confirm that the May 6 letter was not
an unequivocal acceptance but, at most, was an agreement to negotiate.16

Valdez Fisheries argues that an internal Alyeska document-a May 1994 Authorization for Expenditure-
obtained in discovery after the contract claim was dismissed resolves the ambiguity and substantiates
Alyeska's intent to accept one particular offer. Valdez Fisheries theorizes that the Authorization for
Expenditure set out the material price and duration terms by choosing the five-year, $43,000 payment
alternative, thus removing any uncertainty about the contract terms. But Alyeska did not send this
document to Valdez Fisheries in 1994. Indeed, Valdez Fisheries asserts on appeal that “Alyeska's
execution of the [Authorization] was unknown” to Valdez Fisheries until 1997. Therefore, this internal
memorandum could not have communicated to Valdez Fisheries Alyeska's acceptance of one of the offers
and it could not have made certain terms that were otherwise unenforceably uncertain. 17

Finally, Valdez Fisheries' complaint does not permit a reasonable inference that other facts not
specifically plead might demonstrate unequivocal acceptance. We could hypothesize that Alyeska might
have communicated acceptance via some other unspecified document sent in the period between the
“winning bid” letter and the termination of contract negotiations.18 In this case, however, the superior
court was not required to make such a strained inference to salvage Valdez Fisheries' complaint.19

We cannot hold parties to a standard that requires them to effectively plead evidence prior to conducting
discovery.20 But even without discovery, Valdez Fisheries should have had access to any documents that
might have supported its claim that Alyeska accepted an offer. As explained above, documents not
transmitted to Valdez Fisheries before Alyeska terminated contract negotiations could not demonstrate
unequivocal acceptance.21

Further, to the extent that Valdez Fisheries argues that dismissal of its contract claim was premature
because it was entered prior to discovery, this argument must be rejected because subsequent litigation
allowed Valdez Fisheries to correct any pleading deficiency and avoid any prejudice. Although the court
dismissed the contract claim in 1995, it did not enter final judgment for Alyeska until July 1997. In the
interim, Valdez Fisheries engaged in extensive discovery on its remaining claims, including its promissory
estoppel and promise-to-negotiate claims. Because these claims depended upon similar facts, Valdez
Fisheries effectively remained free to continue discovery that might have helped it revive its dismissed
contract claim.

Valdez Fisheries indeed discovered facts which it relied upon in 1997 when it sought to revive its contract
claim in its proposed second amended third-party complaint. But the second amended third-party
complaint and the supporting motion papers submitted after eighteen additional months of discovery and
investigation failed to point to any Alyeska document transmitted in 1994 to Valdez Fisheries, other than
the “winning bid” letter discussed above, that arguably constituted an unequivocal acceptance of one of
Valdez Fisheries' three offers.22 Thus, even assuming the Rule 12(b)(6) dismissal was premature, it did
not prejudice Valdez Fisheries. Valdez Fisheries had ample opportunity before final judgment to amend
and reinstate its contract claim if it discovered relevant facts supporting that claim.

While “the [Rule 12(b)(6)] threshold may be low, it is real-and it is the plaintiff's burden to take the step
which brings his case safely into the next phase of litigation.” 23 The facts alleged in the original and the
second amended third-party complaints do not permit an inference of unequivocal acceptance. Because
there was no acceptance, there is no contract upon which Valdez Fisheries can sue. On the face of the
pleadings, therefore, Valdez Fisheries' contract claim was fatally flawed.

Accordingly, we affirm the superior court's dismissal of Valdez Fisheries' contract claim and Sea Hawk's
third-party beneficiary claims.24

C. As a Matter of Law, the Agreement to Negotiate Fails for Lack of Specificity.

Valdez Fisheries asserts that even if Alyeska's May 6 letter was not an acceptance of the bid offer, it was
a binding agreement to negotiate. We will enforce agreements to negotiate.25 Participation in
negotiations, however, “does not necessarily mean that the parties will be able to agree on mutually-
acceptable terms,” 26and we will therefore enforce an agreement to negotiate only if it contains “a more
specific way to resolve ․ differences,” such that we are able to discern when the agreement to negotiate has
been breached.27 That standard is not met here. At best, the proposal and Alyeska's reply letter are
evidence of an agreement to negotiate that fails to spell out a method by which differences are to be
resolved. We therefore affirm the superior court's dismissal of Valdez Fisheries' agreement-to-negotiate
claim.

Even if the agreement-to-negotiate claim were to proceed, Valdez Fisheries would only be entitled to
recover costs associated with the negotiations themselves. Since an agreement to negotiate is not an
agreement to agree,28 any costs Valdez Fisheries incurred in anticipation of performance were not
incurred in reasonable reliance on the agreement to negotiate. Further, any costs incurred in preparing
the bid were incurred before Alyeska agreed to negotiate. They are therefore not recoverable under this
theory.

Sea Hawk also argues that it has a claim against Alyeska for breach of the duty to negotiate. Like Sea
Hawk's third-party beneficiary claim against Alyeska, this claim depends upon Valdez Fisheries' claim
because Alyeska never entered into any agreement to negotiate with Sea Hawk. Therefore, our rejection of
Valdez Fisheries' duty-to-negotiate claim requires us to affirm the dismissal of Sea Hawk's duty-to-
negotiate claim.

D. The Superior Court Did Not Err in Dismissing Valdez Fisheries' Promissory Estoppel Claims.

Valdez Fisheries makes two separate promissory estoppel arguments. First, it argues that Alyeska's
“congratulations, you are the winning bidder” letter constituted a promise;  second, it argues that Alyeska
orally promised that “if it accepted [Valdez Fisheries'] proposal, it would lease the Sea Hawk facility from
[Valdez Fisheries].” Under Alaska law, a promise that induces action will bind the promisor only if it
satisfies all four elements of promissory estoppel:

(1) The action induced amounts to a substantial change of position;  (2) it was either actually foreseen or
reasonably foreseeable by the promisor;  (3) an actual promise was made and itself induced the action or
forbearance in reliance thereon;  and (4) enforcement is necessary in the interest of justice.[[29]

We address each alleged promise separately.

1. The alleged written promise contained in Alyeska's May 6 letter

When a promissory estoppel claim is made in conjunction with a breach of contract claim, the “actual
promise” element of promissory estoppel is “analytically identical to” the “ ‘acceptance’ required for a
contract.” 30 Were it otherwise, promissory estoppel, which is intended “to enable courts to enforce
contract-like promises made unenforceable by technical defects or defenses,” 31 would become a device by
which parties could be held to contracts they did not accept. As we have already held, Alyeska's May 6
letter did not accept an offer to contract. It therefore was not an “actual promise,” and thus fails as a
matter of law to satisfy the “actual promise” element of promissory estoppel.

The letter is also deficient as a promise to negotiate. Regarding negotiations, the letter states only that
“[w]e intend to begin the process of negotiating a contract as soon as possible.” This is a statement of
present intent, not a promise.32 This statement therefore also fails as a matter of law to satisfy the “actual
promise” element of promissory estoppel.

Moreover, even treating this statement as a promise, it would not be sufficiently definite to allow
enforcement. At best, it is a promise “to begin negotiations.” It appears from the third-party
complaint that negotiations were begun. To be enforceable, a promise to negotiate must spell out the
method by which a court will determine whether or not the promise was breached. 33 Although Davis v.
Dykman34 considered only a contract to negotiate, not promissory estoppel, its reasoning is instructive
here. Since the third-party complaint does not plead facts which, if accepted as true, establish a
breached promise to negotiate, we affirm the superior court's dismissal of Valdez Fisheries' promissory
estoppel claims based on Alyeska's May 6 letter.

2. McHale's alleged promise

Valdez Fisheries' third-party complaint alleged that Alyeska's McHale promised in a January 1994
conversation with David Cobb, Valdez Fisheries' business manager, that “if Alyeska approved [Valdez
Fisheries'] proposal as best meeting Alyeska's requirements, Alyeska would lease the facility from [Valdez
Fisheries].” 35 Alaska's statute of frauds renders certain “agreement[s], promise[s], or undertaking[s] ․
unenforceable unless [they are] in writing․” 36 The alleged oral promise at issue here falls under the
statute of frauds because it is “an agreement for leasing for a longer period than one year ․ or of any
interest in real property․” 37

The Restatement (Second) of Contracts provides that promissory estoppel can bind a promisor
notwithstanding the statute of frauds.38 In Alaska Democratic Party v. Rice, we endorsed this view as to
employment contracts.39 We explicitly limited this holding to employment contracts, perhaps in
recognition of the frequency of oral employment agreements and the extent to which the main terms of an
employment contract are generally well understood.40 The present case is markedly different because
the duration of the alleged promise is indiscernible.

The statute of frauds serves many purposes. First, it provides certain, consistent, and predictable
principles to guide negotiators.41 It recognizes the inherent evidentiary worth of written evidence, and the
potential injustice created by relying on the memories of interested parties to provide the exact language
of an agreement, which is necessary to discern the limits of the promise.42 It also recognizes the natural
tendency of peoples' memories to contour the words they recall to fit their understanding of the
agreement.43 The statute of frauds encourages people to commit their agreements to writing, and the
process of putting the agreement in writing helps impress upon them the importance of their
agreements.44 It reduces litigation over alleged oral contracts.45 Finally, a limited application of
exceptions to the statute of frauds preserves the legislative intent behind the statute, and gives effect to
the legislative judgment that the benefits conferred by the statute outweigh the potential injustice
produced by its application.46

The facts here implicate the concerns motivating the statute of frauds. We therefore decline to extend
Alaska Democratic Party to cases involving the sale or lease of real estate, in which the purported oral
agreement is ambiguous as to key terms. In such circumstances, promissory estoppel cannot be used to
defeat the statute of frauds' requirement that a writing memorialize the parties' agreement. We
therefore affirm the superior court's dismissal of Valdez Fisheries' promissory estoppel claims as to the
oral promise.

E. The Superior Court Did Not Err in Dismissing Sea Hawk's Promissory Estoppel Claims on Summary
Judgment.

Sea Hawk argues that the superior court erred by failing to apply promissory estoppel to negate the effect
of the statute of frauds. It reasons that dismissing Sea Hawk's promissory estoppel claim is inconsistent
with our holding in Alaska Democratic Party that a promise is enforceable notwithstanding the statute of
frauds if it meets the other elements of a promissory estoppel claim.

The superior court granted Alyeska summary judgment on Sea Hawk's promissory estoppel claims.
Sea Hawk alleges that McHale “specifically promised ․ that [Valdez Fisheries] would get the Alyeska
contract ․ if Sea Hawk sold its plant to [Valdez Fisheries].” Sea Hawk also alleges that Alyeska promised
that “if for any reason Alyeska did not lease the Sea Hawk plant from [Valdez Fisheries], Alyeska would
lease the Sea Hawk plant directly from Sea Hawk on the same terms and conditions.” Thus we have
alleged promises for the lease of real estate, with substantial ambiguity as to terms.

The first alleged promise, that Alyeska would lease from Valdez Fisheries, is ambiguous as to the duration
and price. It appears to report present intentions rather than promise future actions, and as such it is
unenforceable.47 This reading is supported by the second alleged promise, made in the same
conversation, which clearly anticipates Alyeska's refusal to lease from Valdez Fisheries. The second
promise is also ambiguous as to the duration and price of the lease, and presumes that a complete,
unambiguous agreement would be reached between Alyeska and Valdez Fisheries, and that Sea Hawk
could simply step into Valdez Fisheries' shoes.

Moreover, the promises alleged by Sea Hawk were oral, and implicate the same statute of frauds
concerns as the oral promises made to Valdez Fisheries. We hold that promissory estoppel cannot be
used to defeat the statute of frauds' requirement that an agreement for a lease with a term that exceeds
one year must be in writing where, as here, the purported oral agreement contains substantial ambiguity
as to key terms. We therefore affirm the superior court's grant of summary judgment on Sea Hawk's
promissory estoppel claims.

F. The Superior Court Permissibly Declined to Sanction Alyeska for Its Conduct in Discovery.

Valdez Fisheries contends that it was error not to sanction Alyeska for failing to produce “crucial
smoking gun documents” until less than a month before trial. Valdez Fisheries argues that Alyeska's
internal Authorization for Expenditure is particularly significant. The Authorization for Expenditure is
an internal Alyeska request for funding for the wildlife rehabilitation center. It summarizes the project,
gives reasons for the project, and lists the project costs as $2,580,000 for a five-year lease with a renewal
option. McHale signed the Authorization for Expenditure, although the signature lines for the
approving president and vice-president are blank. Valdez Fisheries argues that the Authorization for
Expenditure proves which of the three leasing options Alyeska chose, and thus removes any uncertainty
about the contract terms.

The superior court declined to sanction Alyeska, holding that the information contained in the
document “is not new, doesn't seem to be critical, does not support the claim for relief against Alyeska and
there was no improper discovery conduct.” We review discovery sanctions for abuse of discretion 48 and
findings of fact for clear error.

Valdez Fisheries' argument that the Authorization for Expenditure is a “smoking gun” depends on its
theory that it provides the missing terms of the lease agreement. As a matter of law, the document is not
itself an acceptance because it was never communicated to Valdez Fisheries-the offeror. Valdez
Fisheries argues that the document manifests Alyeska's intent as to terms. But the specific terms
considered internally by Alyeska are irrelevant absent an acceptance.

Valdez Fisheries has not demonstrated that the superior court erred in concluding that the information
provided by the newly produced evidence, including the Authorization for Expenditure, was not critical
and did not support the claims against Alyeska. We conclude that it did not abuse its discretion by
declining to impose sanctions. We therefore affirm the oral order declining to sanction Alyeska.

G. The Superior Court Did Not Improperly Deny Leave to Amend Valdez Fisheries' Third-Party
Complaint.

Valdez Fisheries moved to amend its third-party complaint against Alyeska, arguing that various
internal Alyeska documents supplied the contract terms, and that Alyeska misrepresented the status of
the project. The superior court found that the proposed amendment would assert new claims for the tort
of misrepresentation and for punitive damages, but that the facts giving rise to these claims were “largely
coexistent” with the facts giving rise to Valdez Fisheries' prior claims, and that there was “no adequate
reason” why Valdez Fisheries had not previously asserted the proposed new claims. Noting that trial
was to begin in seven weeks, it also found that the resulting cost and preparation time would unduly
prejudice Alyeska. It therefore denied the motion to amend. Valdez Fisheries argues that it was error
not to grant its motion.

We review the denial of leave to amend for abuse of discretion.49 We will reverse the superior court's
order only if we are left with a definite and firm conviction that it erred in its ruling. 50

Alaska Civil Rule 15(a) provides that “leave [to amend] shall be freely given when justice so requires.”
Leave to amend is liberally granted in Alaska.51 But the superior court retains discretion to deny leave to
amend on the eve of trial in a situation like this.52

This was Valdez Fisheries' third attempt to amend its claims against Alyeska. Valdez Fisheries argues
that the claims were newly discovered, but the superior court found that they were based on facts already
known to Valdez Fisheries. This finding was not clearly erroneous. Although Valdez Fisheries
discovered new details during depositions it took in 1997, and requested and received documents from
Alyeska concerning these details, the main thrust of the information was not new. We therefore affirm
the superior court's denial of leave to amend the third-party complaint.

Because we have affirmed the superior court's holdings, Valdez Fisheries has no remaining claims against
Alyeska. It is therefore unnecessary for us to reach the question whether the superior court erred in
limiting Valdez Fisheries' damages to its costs associated with negotiations.

H. The Superior Court Did Not Err in Dismissing Sea Hawk's Negligent Misrepresentation and Omission
Claim.
 Sea Hawk argues that it was error to dismiss its claim that Alyeska misrepresented its intentions to lease
the Sea Hawk facility. Sea Hawk alleges that in January 1994 McHale made promises to Sea Hawk
although he knew that Alyeska harbored internal misgivings about the project. Holding that there was
no duty to disclose, the superior court dismissed this claim on summary judgment.

The four elements of the tort of negligent misrepresentation are:

First, the party accused of the misrepresentation must have made the statement “in the course of his [or
her] business, profession or employment, or in any other transaction in which [s/]he has a pecuniary
interest.” Second, the representation must supply “false information.” Third, there must be “justifi[
]able reliance” on the false information supplied. Finally, the accused party must have failed “to exercise
reasonable care or competence in obtaining or communicating the information.” [53]

We do not see how McHale and Cesarini's casual conversations in January 1994, some four months
before Alyeska sent its May 6 “winning bid” letter to Valdez Fisheries' proposal, could have created an
ongoing duty to advise Sea Hawk of Alyeska's June 1994 misgivings. Sea Hawk has not demonstrated a
genuine dispute about whether McHale's alleged January 1994 assurances were false when made. A
statement made as to future intentions and actions is not a misrepresentation if it is accurate when it is
made, even if future events render it inaccurate.54

Sea Hawk argues that once Alyeska represented its intentions in January, it had a duty to alert Sea Hawk
if its intentions changed. Such a holding would stretch the negligent misrepresentation doctrine in
Alaska. We have held that “[a] duty to disclose is rarely imposed where the parties deal at arm's
length․” 55 The dealings between Alyeska and Sea Hawk, as evidenced by the infrequency of their
conversations, were at arms length. Sea Hawk has consequently not demonstrated that a reasonable
jury could find that Sea Hawk's alleged reliance on these four-month-old assurances was reasonable.
There is no issue of fact about whether Alyeska misled Sea Hawk after Alyeska allegedly changed its
intentions, because Sea Hawk had not claimed that it made post-change attempts to obtain Alyeska's
confirmation of McHale's alleged January representations to Sea Hawk.

Because we find that the evidence in the record would support a limited duty at best, and because Sea
Hawk's actions in reliance were not reasonable given the limited nature of this duty, we affirm the
superior court's dismissal of Sea Hawk's negligent misrepresentation and omission claim on summary
judgment.

I. It Was Not an Abuse of Discretion to Deny Alyeska's Request for Attorney's Fees Exceeding the Usual
Twenty Percent.

Alyeska argues on cross-appeal that the superior court erred by awarding Alyeska twenty percent of the
fees it had incurred,56 rather than enhanced fees under a percentage exceeding twenty percent.57 We will
not reverse an award of costs and fees absent “a clear abuse of discretion.” 58 We will not find a clear
abuse of discretion unless the award is arbitrary, capricious, manifestly unreasonable, or the result of an
impermissible motive.59 An award that tracks the scheduled fee award of Alaska Civil Rule 82 is
presumptively valid.60

Alyeska has not demonstrated that awarding twenty percent of its fees was arbitrary, capricious, or
manifestly unreasonable. Alyeska's arguments demonstrate, at best, that reasonable minds could
disagree about the appropriate amount. The record reveals vigorous litigation which the superior court
did not find to be vexatious. Alyeska has not shown that the record compels a finding that Valdez
Fisheries and Sea Hawk's actions were excessively litigious or vexatious, and has hence failed to
demonstrate a clear abuse of discretion. We therefore affirm the superior court's award of attorney's
fees.

IV. CONCLUSION

For these reasons we AFFIRM in all respects.

I disagree with the court's conclusion that Valdez Fisheries' third-party complaint against Alyeska was
properly dismissed under Alaska Rule of Civil Procedure 12(b)(6).

Civil Rule 12(b)(6) permits the court to dismiss a complaint that fails to state a viable claim. 1 We have
frequently held that motions to dismiss are disfavored 2 and have urged that complaints be “give[n] ․ the
benefit of the doubt.” 3 In determining whether a claim is sufficiently stated, courts must read the
complaint in the light most favorable to the claimant and deem all alleged facts and reasonable inferences
arising therefrom as if they were true.4 A complaint that is merely vague or lacks detail is not fatally
flawed; 5  instead, it suffices “if the allegations provide for relief on any possible theory.” 6 Hence, a
complaint will withstand challenge under Rule 12(b)(6) as long as it “set[s] forth allegations of fact
consistent with and appropriate to some enforceable cause of action” and provides a framework for future
evidence demonstrating entitlement to the requested relief.7 “A complaint should not be dismissed
‘unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which
would entitle him to relief’ ” 8 or unless the complaint itself rules out the possibility that a valid claim
exists.9

In applying these principles to a given case, we must also bear in mind Alaska's traditionally lenient notice
pleading standards. Civil Rule 8 simply requires that a complaint include “(1) a short and plain
statement of the claim showing that the pleader is entitled to relief, and (2) a demand for judgment for the
relief the pleader seeks.” 10 The rule further advises that “[e]ach averment of a pleading shall be simple,
concise and direct. No technical forms of pleading or motions are required.” 11 We have not construed
this rule to require details of evidence that a claimant will offer to establish a claim;  to the contrary, we
have emphasized that the rule is satisfied by a brief statement that “give[s] the defendant fair notice of the
claim and the grounds upon which it rests.” 12

Disregarding these well-established principles, the court holds Valdez Fisheries' breach-of-contract claim
facially deficient for neglecting to affirmatively plead specific facts that unequivocally establish the
elements of a valid contract.13 More particularly, because it notes that “[a] valid contract requires
‘unequivocal acceptance by the offeree,’ ” the court demands that “Valdez Fisheries' third-party complaint
directly or inferentially [must] contain[ ] ․ factual allegations [that] could be considered an unequivocal
expression of acceptance.” 14 By effectively requiring that Valdez Fisheries' third-party complaint be
dismissed for failing to particularly plead all facts justifying recovery, the court's ruling inverts the usual
principle that condones dismissal under Rule 12(b)(6) only “where the complaint ․ ‘presents no set of facts
justifying recovery.’ ” 15

The court's ruling also conflicts with Civil Rule 8's lenient notice pleading requirement. Great Western
Savings Bank v. George W. Easley Co., J.V.16 usefully illustrates the conflict. There Great Western
appealed an award in favor of Easley for breach of contract, arguing that the contract claim should have
been kept from the jury because Easley's complaint failed to allege a necessary element for a valid
contract-consideration.17 We rejected that argument, unequivocally ruling that Civil Rule 8 does not
require a complaint to affirmatively plead contract elements:

Alaska is a notice pleading state. Alaska R. Civ. P. 8(a). The rules merely require “a short and plain
statement of the claim” that will give the defendant fair notice of what the plaintiff's claim is and the
grounds upon which it rests. Easley Company's second amended complaint alleged that Great Western
had a contractual obligation to make direct payments to Easley Company. It further alleged that Great
Western breached this contract and that Easley Company suffered damages. Easley Company's
complaint sufficiently put Great Western on notice of the claims against it and of the grounds upon which
they rested. There was no need to allege consideration. The second amended complaint satisfied the
requirements of Civil Rule 8(a).[18]

Great Western thus allows breach-of-contract claims to go forward without specifically pleading the
elements of contract formation, making it clear that a complaint gives the defendant sufficient notice if it
generally alleges that a contract existed and was breached in a way that damaged the plaintiff. 19
In demanding that a complaint specifically plead all contract elements, then, the court's opinion today
ignores the plain language of Civil Rule 8 and overturns settled precedent that interprets Rule 8 to eschew
particularized pleading of contract elements. Furthermore, the opinion implicitly conflicts with Alaska
Civil Rule 9, which does require particularized pleading for certain special matters, but conspicuously
does not extend its particularized pleading requirement to contract elements. 20 Indeed, Rule 9(c)
effectively requires defendants to plead the absence of contract elements, stating that claimants need only
aver “the performance or occurrence of conditions precedent” “generally,” while explicitly assigning to
defendants the duty to plead denial of performance or occurrence of conditions precedent “specifically
and with particularity.” 21

In the present cases, paragraph 59 of Valdez Fisheries' third-party complaint alleges that

[a] valid and enforceable contract was made between Alyeska and [Valdez Fisheries] pursuant to which
[Valdez Fisheries'] agreed to acquire and modify the Sea Hawk Facility in Valdez according to certain and
stated specifications and Alyeska agreed to lease the modified facility from [Valdez Fisheries] on certain
and stated terms.

Under Civil Rule 8's notice pleading standards, this paragraph alone pleads the existence of a contract
with sufficient clarity to place Valdez Fisheries' contract claim beyond reach of a Rule 12(b)(6) motion.
To my knowledge, this court has never before ruled that a complaint for breach of contract must, in
addition to pleading that a contract existed and was breached, affirmatively recite all necessary contract
elements;  nor has this court previously suggested that the element of acceptance must be described by
specific “factual allegations [that] could be considered an unequivocal expression of acceptance.” 22 The
court's newly adopted specific-pleading requirement is a sharp break from our settled law and will surely
come as a rude surprise to many Alaska lawyers who have drafted, and currently have pending, contract
complaints that rely on Alaska's hitherto flexible and common-sense pleading requirements.

But even under today's newly declared specific-pleading standard, I think that Valdez Fisheries' third-
party complaint states a facially viable claim for breach of contract. In my view, the court
mischaracterizes the winning bid letter as containing the complaint's only “pertinent allegations” of
Alyeska's acceptance. Paragraph 48 of the third-party complaint quotes Alyeska's winning bid letter,
prefacing the quotation by simply describing it as a response to Valdez Fisheries' earlier bid submittals.
The prefatory language says nothing else:  it neither explicitly nor implicitly purports to characterize the
May 26, 1994, letter as Alyeska's unequivocal acceptance-let alone as Valdez Fisheries' sole evidence of
acceptance.

In the next paragraph, though, the third-party complaint does specifically allege an acceptance-an event
that this paragraph implicitly alleges occurred on June 3, 1994, a full month after Alyeska's winning bid
letter:

On June 3, 1994, representatives of Alyeska and [Valdez Fisheries] met at Alyeska's offices in Anchorage,
Alaska. The matters discussed at this meeting included the planning and scheduling of the “project” and
the “contract structure.” At this meeting, the attorneys for Alyeska and [Valdez Fisheries] discussed the
preparation of a document incorporating the terms that had been proposed by [Valdez Fisheries] and
accepted by Alyeska. The attorney[ ]s agreed that the appropriate document would be a lease
agreement. [Valdez Fisheries] asked Alyeska if Alyeska had a “boilerplate” lease agreement that the
parties could use as a framework for the agreement. Alyeska replied that it did not have such a
document, whereupon [Valdez Fisheries] agreed to provide a “boilerplate draft” of the document.[23]

Two paragraphs later, in paragraph 51, the complaint alleges that Valdez Fisheries sent Alyeska a
“boilerplate draft” to serve as the contract's “framework.” In its ensuing paragraphs-paragraphs 52-54-
the complaint describes Alyeska's subsequent acts reneging on its contractual commitment. And as
already noted above, the complaint then proceeds to repeat its specific allegation of acceptance in
paragraph 59 by realleging the existence of “[a] valid and enforceable contract ․ between Alyeska and
[Valdez Fisheries] pursuant to which ․ Alyeska agreed to lease the modified facility from [Valdez
Fisheries] on certain and stated terms.” Like the language of paragraph 49, this language pleads an
unequivocal acceptance;  and nothing in this language purports to confine its allegation of acceptance to
the winning bid letter's language or to negate paragraph 50's allegation that an acceptance occurred at or
around the time of the June 3 meeting.

Of course I recognize that a complaint can become vulnerable to dismissal under Rule 12(b)(6) if it
affirmatively pleads too much and establishes a fatal flaw-some specific fact whose existence categorically
precludes recovery and demonstrates “that there is some insuperable bar to relief.” 24 But my reading of
the entire third-party complaint in the light most favorable to Valdez Fisheries (the reading that we must
adopt for purposes of evaluating the propriety of a Rule 12(b)(6) dismissal) 25 fails to reveal any such
affirmatively stated fatal flaw. Valdez Fisheries undeniably does quote Alyeska's winning bid letter;  so
too, it relies on the letter as part of its claim for breach of contract damages;  but the third-party complaint
nowhere touts the winning bid letter as an unequivocal acceptance per se, and it never implicitly or
explicitly disclaims the existence of other evidence that would prove Alyeska's unequivocal acceptance.

To the extent that the court's opinion gleans any “insuperable bar” from the complaint inferentially, the
court necessarily violates the interpretive rule that requires it to give Valdez Fisheries “the benefit of all
reasonable inferences” in determining whether its complaint passes muster under Rule 12(b)(6). 26 When
read in its entirety and taken as true, then, the third-party complaint meets even the newly imposed and
unjustifiably stringent demand for allegations that “directly or inferentially” “could be considered an
unequivocal expression of acceptance.” 27

Yet the court's opinion nonetheless refuses to discuss-or even to acknowledge-any allegation of
acceptance in the complaint other than Alyeska's winning bid letter. The opinion rests its refusal to
consider anything but the winning bid letter on two related legal assumptions:  The opinion assumes that
an “unequivocal acceptance” could not occur unless Valdez Fisheries alleged that Alyeska specifically
agreed to accept one of Valdez Fisheries' three alternative lease proposals 28 and it further assumes that
the statute of frauds would bar any oral acceptance by Alyeska.29 Yet neither assumption bears up to
scrutiny.

First, the opinion broadly posits that an unequivocal acceptance could not have occurred-and therefore no
valid contract could possibly have arisen-unless Alyeska specifically accepted, and communicated its
acceptance of, one of Valdez Fisheries' three alternative lease proposals:

Even if we were to interpret Alyeska's letter to say unequivocally that “we accept your offer,” we could not
say which of the three offers it was accepting, and whether Alyeska was agreeing to lease the property for
five years, seven years, or ten years, with monthly rent payments of $43,000, $40,000, or $35,000,
respectively. Duration and price are important contract terms. Such great differences in important
contract terms preclude finding a meeting of minds. The significant differences in the alternatives
confirm that the May 6 letter was not an unequivocal acceptance but, at most, was an agreement to
negotiate.[30]

The opinion further professes that the court would be incapable of determining the legal consequences of
a breach, even if a contract could somehow have arisen:  “We likewise do not see how a court could
enforce the alleged contract. Based on the proposal and Alyeska's response, a court could not order
specific performance or calculate damages for breach.” 31

But universally recognized contract law contradicts these assumptions. Professor Corbin expressly
describes the kind of agreement at issue here as a commonly accepted and routinely enforced “alternative
contract”:

An alternative contract is one in which a party promises to render some one of two or more alternative
performances either one of which is mutually agreed upon as the bargained-for equivalent given in
exchange for the return performance by the other party. The choice among these alternatives, the power
of election, is usually given to the promisor;  but it need not be. If the option is in the promisor, he has
power to discharge his contractual duty by performing either alternative․ The breach of such a contract
consists either in a repudiation of [the promisor's] contractual duty by the promisor or in [the promisor's]
failure to perform any and all of the alternatives provided in the contract.[32]

And according to Corbin, “[f]or such a breach the measure of damages recoverable by the promisee is the
value of that alternative that is the least burdensome and expensive to the promisor.” 33

This court has expressly recognized the validity of alternative contracts on at least two past
occasions.34 And there appears to be no reason why the same kind of agreement would not be
enforceable in this case. Here, Valdez Fisheries unequivocally offered Alyeska the choice of any one of
three alternative lease provisions, each one definite and unambiguous in its own right and all equally and
unconditionally acceptable to Valdez Fisheries. Alyeska's winning bid letter may not itself have been an
unequivocal acceptance because it only proposed to “negotiate” Valdez Fisheries' offer. But if Alyeska
later gave Valdez Fisheries an unequivocal commitment to proceed with a contract that allowed Alyeska
its choice of these three alternatives-as paragraph 49 of the third-party complaint implicitly alleges
Alyeska did at the June 3, 1994, meeting-then Alyeska would have entered into a valid and enforceable
“alternative contract,” notwithstanding its reservation of the right to elect alternatives. And
correspondingly, upon Alyeska's subsequent breach, Valdez Fisheries would be entitled to recover
damages measured by the shortest of the three lease proposals (and, presumably, by any reasonably
foreseeable consequential damages that Valdez Fisheries incurred as a result of Alyeska's breach of that
provision).35

The second assumption driving the court's refusal to acknowledge any allegation of acceptance in the
third-party complaint, other than paragraph 48's reference to the winning bid letter, rests on the statute
of frauds. Referring to its discussion of the statute of frauds in connection with the separate estoppel
claim that Valdez Fisheries bases on McHale's alleged verbal promises, the opinion reasons that “any oral
communications [concerning the alleged Alyeska/Valdez Fisheries' contract] would be unavailing under
the statute of frauds even if they were unequivocal expressions of acceptance.” 36 Yet this assertion lacks
merit for two independent reasons:  it overstates the statute of frauds' substantive requirements, and it
relies on an impermissible procedural theory for dismissal under Rule 12(b)(6).

The statute of frauds reflects pragmatic concerns, and so has been uniformly interpreted to place
substance over form. As Professor Corbin emphasizes, it has not been construed to require a formal or
complete written contract and should be flexibly applied on a case-by-case basis to accept any writing that
realistically dispels the danger of fraud:

[W]e should always be satisfied with “some note or memorandum” that is adequate, when considered
with the admitted facts, the surrounding circumstances, and all explanatory and corroborative and
rebutting evidence, to convince the court that there is no serious possibility of consummating a fraud by
enforcement.[37]

Alaska has followed Professor Corbin's view of the statute, holding that a writing, even if not formal or
complete, satisfies the statute as long as it avoids any serious possibility that enforcing the contract would
result in perpetrating a fraud.38

Under this practical view of the statute, it might be perfectly sensible to bar the promissory estoppel claim
that Valdez Fisheries bases exclusively on McHale's alleged verbal promise:  that promise was at most an
informal, non-contractual, and unauthorized oral assurance made even before Alyeska issued its
invitation to bid;  and it is evidently unsupported by any reasonably contemporary corroborating notation.
By contrast, when the statute's flexible analysis is applied to Valdez Fisheries' direct contract claim against
Alyeska, the outcome changes dramatically:  for if Alyeska's Authorization for Expenditure is viewed in
conjunction with Alyeska's invitations to bid, Valdez Fisheries' specific responses, Alyeska's winning bid
letter, the parties' subsequent correspondence relating to the June 3, 1994, meeting, and the “boilerplate”
contract that Valdez Fisheries then sent to Alyeska, the Authorization for Expenditure would easily satisfy
the statute of frauds' basic goal of erasing all “serious possibility of consummating a fraud by
enforcement.” 39 And by so doing, it would allow Valdez Fisheries to prove its claim through any
otherwise admissible evidence of an oral acceptance. The fact that Alyeska's Authorization for
Expenditure was internally generated and was never communicated to Valdez Fisheries certainly might
preclude the authorization itself from being deemed a valid acceptance. But this same fact would have
no bearing on the Authorization's ability to satisfy the separate and distinctly narrower concerns of the
statute of frauds, thus opening the door to proof of an oral acceptance.

And in any event, because the third-party complaint does not categorically rule out the possibility of a
written acceptance, Alyeska cannot properly invoke the statute of frauds as a basis for a Rule 12(b)(6)
dismissal. As this court has previously recognized, even though the statute of frauds is generally
considered an affirmative defense, it can sometimes be properly raised by a motion to dismiss under Rule
12(b)(6)-but only when this defense is unequivocally established on the face of the complaint, as, for
example, when the complaint defeats itself by explicitly alleging a sale of land based on an oral
agreement.40 By contrast, in any more equivocal circumstances-for example, even when a plaintiff's
“opposition to the motion to dismiss framed its arguments as though only an oral agreement was asserted
as the basis for relief”-we have specifically held that if the “complaint did not clearly allege [the fact of an
oral agreement,] ․ dismissal could be viewed as inappropriate for that reason.” 41 Here, then, because the
third-party complaint did not “clearly allege” an oral acceptance, dismissal for violation of the statute of
frauds could properly be granted before summary judgment.

For these reasons, I would hold that Valdez Fisheries' third-party complaint sets forth a facially plausible
claim for breach of contract that could not properly be dismissed under Rule 12(b)(6). 42 I therefore
dissent from the court's decision to affirm the superior court's order dismissing the claim.

FOOTNOTES

1. We describe the facts for purposes of these appeals taking all permissible inferences in favor of
Valdez Fisheries and Sea Hawk Seafoods.

2. This is how Valdez Fisheries' third-party complaint described its offer.

3. This is how Valdez Fisheries' third-party complaint described Alyeska's response.

4. Christiansen v. Melinda, 857 P.2d 345, 346 n. 2 (Alaska 1993) (citing Kollodge v. State, 757 P.2d
1024, 1026 n. 4 (Alaska 1988)).

5. Kollodge, 757 P.2d at 1026 (citation omitted).

6. Id. (citation omitted).

7. Shooshanian v. Wagner, 672 P.2d 455, 461 (Alaska 1983) (citation omitted).

8. Reeves v. Alyeska Pipeline Serv. Co., 926 P.2d 1130, 1134 (Alaska 1996).

9. Id. (citing Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1280 (Alaska 1985)).

10. Reeves, 926 P.2d at 1134 (citations omitted).

11. Cooperman v. Individual, Inc., 171 F.3d 43, 47 (1st Cir.1999) (citation omitted);  Gooley v. Mobil Oil
Corp., 851 F.2d 513, 515 (1st Cir.1988) (interpreting Federal Rule of Civil Procedure 12(b)(6) and stating
that “[m]odern notions of ‘notice pleading’ notwithstanding, a plaintiff ․ is nonetheless required to set
forth factual allegations, either direct or inferential, respecting each material element necessary to sustain
recovery under some actionable legal theory”);  Charles Alan Wright et al., Federal Practice and Procedure
§ 1216, 156-59 (2d ed.1990) (stating complaint must “contain allegations on every material point
necessary to sustain a recovery ․ or contain allegations from which an inference fairly may be drawn that
evidence on these material points will be introduced at trial”);  see also Blaw Knox Ret. Income Plan v.
White Consol. Indus., Inc., 998 F.2d 1185, 1189-90 (3d Cir.1993) (affirming Federal Rule of Civil
Procedure 12(b)(6) dismissal because ERISA complaint that employer breached fiduciary duty did not
specifically allege facts which, if true, would demonstrate that employer had mismanaged plans or failed
to meet statutory funding obligations);  Dworkin v. First Nat'l Bank of Fairbanks, 444 P.2d 777, 779-80
(Alaska 1968) (holding that Alaska Civil Rule 12(b)(6) dismissal was proper where complaint afforded no
factual basis for inferring requisite elements of equitable mortgage claim).

12. Davis v. Dykman, 938 P.2d 1002, 1006 (Alaska 1997) (“The formation of a valid contract requires an
offer encompassing all essential terms, unequivocal acceptance by the offeree, consideration, and an
intent to be bound.”) (citations omitted).

13. See Ahwinona v. State, 922 P.2d 884, 886 (Alaska 1996) (interpreting meaning of attached release
in affirming Rule 12(b)(6) dismissal). Interpreting the words in a contract is a question of law “[w]here
the facts relating to surrounding circumstances are not in dispute.” State v. Fairbanks N. Star Borough
Sch. Dist., 621 P.2d 1329, 1331-32 n. 5 (Alaska 1981) (quoting Nat'l Bank of Alaska v. J.B.L. & K. of Alaska,
Inc., 546 P.2d 579, 586 (Alaska 1976)).

14. See Magill v. Nelbro Packing Co., 43 P.3d 140, 143-44, (Alaska 2001) (affirming trial court's
conclusion that no profit sharing agreement had been formed where no evidence of sufficiently definite
price term);  Clark v. Greater Anchorage, Inc., 780 P.2d 1031, 1035 (Alaska 1989) (affirming denial of
directed verdict where agreement to procure insurance was sufficiently definite and certain because,
among other things, duration of coverage could be inferred from past dealings and business customs).

15. See Davis, 938 P.2d at 1006 (stating that an agreement is not enforceable if its essential terms are
not reasonably certain) (citations omitted).

16. We likewise do not see how a court could enforce the alleged contract. Based on the proposal and
Alyeska's response, a court could not order specific performance or calculate damages for breach.

17. Acceptance requires a reasonable manifestation of assent to the terms of the offer. Restatement
(Second) of Contracts § 50 (1979). Except in unusual circumstances not present here, manifestation of
acceptance by promise requires a reasonable attempt to communicate this promise to the offeror. See
Restatement (Second) of Contracts § 56 (it is generally “essential to an acceptance by promise ․ that the
offeree exercise reasonable diligence to notify the offeror of acceptance”);  id. at § 69 cmt. a (offeree's
silence or inaction generally cannot constitute acceptance). Even assuming the Authorization for
Expenditure would have been an acceptance by promise had Alyeska communicated it to Valdez Fisheries,
Alyeska made no attempt to do so. The Authorization for Expenditure simply provides no basis for
determining that Alyeska manifested assent to Valdez Fisheries' offer. See Zeman, 699 P.2d at 1281-82
(stating that summary judgment on breach of contract claim is appropriate where no reasonable person
could read purported acceptance as evidencing mutual assent);  see also Davis, 938 P.2d at 1006.

18. As discussed infra at Part III.D.2., any oral communications would be unavailing under the statute
of frauds even if they were unequivocal expressions of acceptance.

19. Gooley, 851 F.2d at 514 (noting that “court[s] need not conjure up unpled allegations or contrive
elaborately arcane scripts” to save a complaint from dismissal).

20. Cooperman, 171 F.3d at 47 (citation omitted).

21. Supra note 18 and accompanying text.

22. Valdez Fisheries argues that it did not obtain the Authorization for Expenditure until several weeks
after the court denied its proposed second amended complaint. As discussed above, however, the
Authorization for Expenditure could not support an inference that Alyeska accepted Valdez Fisheries'
offer because it was never communicated to Valdez Fisheries.

23. Gooley, 851 F.2d at 515 (citation omitted).

24. Sea Hawk cannot be a third-party beneficiary in the absence of a valid contract between Alyeska
and Valdez Fisheries.
25. See Davis, 938 P.2d at 1008-09 (“In theory, an agreement to negotiate is an enforceable contract in
the sense that the parties can be made to participate in negotiations.”).

26. Id.

27. Id. at 1009.

28. See id.

29. Zeman, 699 P.2d at 1284.

30. Brady v. State, 965 P.2d 1, 11 (Alaska 1998).

31. Id. at 10.

32. See id. (drawing distinction between unequivocal acceptance and comments about timing and
capacity such as “ ‘[w]e can be prepared to sign ․ make that contract ․ sign that contract ․ on the day they
sign the classification order.’ ”).

33. Davis v. Dykman, 938 P.2d 1002, 1009 (Alaska 1997).

34. 938 P.2d 1002, 1009 (Alaska 1997).

35. Alyeska argues that this court cannot consider McHale's alleged promise because it was not set out
in Valdez Fisheries' original third-party complaint. But Valdez Fisheries' first amended third-party
complaint, which was partially accepted by the superior court, pleads the McHale promise. The superior
court granted Valdez Fisheries' motion to amend some of its claims, including “its good faith/reasonable
efforts and promissory estoppel claims against Alyeska.” The McHale promise is part of the promissory
estoppel claims.

36. AS 09.25.010(a).

37. AS 09.25.010(a)(6).

38. Restatement (Second) of Contracts § 139 (1981).

39. 934 P.2d 1313, 1316-17 (Alaska 1997).

40. Id.

41. See David J. Gass, Michigan's UCC Statute of Frauds and Promissory Estoppel, 74 Mich. B.J. 524,
526 (1995) (listing general reasons given for statute of frauds in survey of cases).

42. See id. at 527.

43. See id.

44. See id.

45. See id.

46. See id. at 527-28.

47. See Brady, 965 P.2d at 10.

48. Christensen v. NCH Corp., 956 P.2d 468, 473 (Alaska 1998).
49. Betz v. Chena Hot Springs Group, 742 P.2d 1346, 1348 (Alaska 1987).

50. Id.

51. See, e.g., Betz, 742 P.2d at 1348.

52. Neal & Co. v. City of Dillingham, 923 P.2d 89, 95 (Alaska 1996).

53. Bubbel v. Wien Air Alaska, Inc., 682 P.2d 374, 380 (Alaska 1984) (quoting Restatement (Second) of
Torts § 552(1) (1977)).

54. Id. at 381.

55. Matthews v. Kincaid, 746 P.2d 470, 472 (Alaska 1987).

56. See Alaska R. Civ. P. 82(b)(2).

57. See Alaska R. Civ. P. 82(b)(3).

58. State v. Alaska Int'l Air, Inc., 562 P.2d 1064, 1067 (Alaska 1977).

59. Power Constructors, Inc. v. Taylor & Hintze, 960 P.2d 20, 44 (Alaska 1998) (citations omitted).

60. Reid v. Williams, 964 P.2d 453, 460 (Alaska 1998) (citation omitted).

1. Rule 12(b) provides:Every defense, in law or fact, to a claim for relief in any pleading, whether a
claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto
if one is required, except that the following defenses may at the option of the pleader be made by motion:
 ․ (6) failure to state a claim upon which relief can be granted․ If, on a motion asserting the defense
numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted,
matters outside the pleading are presented to and not excluded by the court, the motion shall be treated
as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

2. E.g., Kollodge v. State, 757 P.2d 1024, 1026 (Alaska 1988);  Reed v. Municipality of Anchorage, 741
P.2d 1181, 1184 (Alaska 1987);  Knight v. American Guard & Alert, Inc., 714 P.2d 788, 791 (Alaska 1986).

3. Knight, 714 P.2d at 791.

4. Kollodge, 757 P.2d at 1026;  Guerrero v. Alaska Hous. Fin. Corp., 6 P.3d 250, 253 (Alaska 2000).

5. Knight, 714 P.2d at 791;  see also Shannon v. City of Anchorage, 429 P.2d 17, 19 (Alaska 1967). (“The
complaint alleged that appellee was negligent in failing to fulfill its duty of furnishing Jacob's ladders for
use of [plaintiff]. That was all that was necessary to state a claim for relief. It was unnecessary to state
the evidential facts upon which such a duty was founded․ If appellee needed more facts, it could call for
them under Civil Rule 12(e) or obtain them by utilization of the rules relating to discovery.”) (citations
omitted).

6. Knight, 714 P.2d at 791 (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure § 1357, at 602 (1969)).

7. Linck v. Barokas & Martin, 667 P.2d 171, 173 (Alaska 1983).

8. Shooshanian v. Wagner, 672 P.2d 455, 461 (Alaska 1983) (quoting Conley v. Gibson, 355 U.S. 41, 45-
46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).
9. Guerrero, 6 P.3d at 253-58 (allowing dismissal only if it was “beyond doubt” that plaintiff could not
factually support a claim for relief).

10. Alaska R. Civ. P. 8(a).

11. Alaska R. Civ. P. 8(e)(1).

12. Sykes v. Melba Creek Mining, Inc., 952 P.2d 1164, 1168 n. 4 (Alaska 1998);  cf. Gamble v. Northstore
P'ship, 907 P.2d 477, 481-83 (Alaska 1995) (stating that “[a]n affirmative defense is adequately pleaded if
it provides the opponent fair notice of the nature of the defense” and deeming an answer that stated,
“Plaintiffs are barred by estoppel” and “Plaintiffs are barred by res judicata” as sufficient to raise
affirmance as an affirmative defense because the pleaded defenses “invok[ed] some of the same concerns
in general terms”).

13. Op. at 665-666

14. Id. at 665.

15. The opinion expressly acknowledges this principle. See Op. at 665 (quoting Cooperman v.
Individual, Inc., 171 F.3d 43, 47 (1st Cir.1999) (emphasis added)).

16. 778 P.2d 569 (Alaska 1989).

17. Id. at 577-78.

18. Id.

19. See id.

20. For example, Civil Rule 9(a) requires specificity in pleading capacity, Rule 9(b) requires specificity
in pleading fraud, mistake, and condition of mind, and Rule 9(h) requires specificity as to items of special
damage:(a) Capacity. It is not necessary to aver the capacity of a party to sue or be sued or the authority
of a party to sue or be sued in a representative capacity or the legal existence of and organized association
of persons that is made a party, except to the extent required to show the jurisdiction of the court. When
a party desires to raise an issue as to the legal existence of any party or the capacity of any party to sue or
be sued or the authority of a party to sue or be sued in a representative capacity, the party desiring to raise
the issue shall do so by specific negative averment, which shall include such supporting particulars as are
peculiarly within the pleader's knowledge.(b) Fraud, Mistake, Condition of the Mind. In all averments of
fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.
Malice, intent, knowledge, and other condition of mind of a person may be averred generally.․(h) Special
Damage. When items of special damage are claimed, they shall be specifically stated.

21. Civil Rule 9(c) provides:Conditions Precedent. In pleading the performance or occurrence of
conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed
or have occurred. A denial of performance or occurrence shall be made specifically and with
particularity.

22. Op. at 665.

23. Emphasis added.

24. 5A Charles Alan Wright & Arthur R. ller, Federal Practice and Procedure § 1357, at 344 (2d
ed.1990). For a good example of such a case, see Ahwinona v. State, 922 P.2d 884, 886 (Alaska 1996).

25. Guerrero v. Alaska Hous. Fin. Corp., 6 P.3d 250, 253 (Alaska 2000);  Kollodge v. State, 757 P.2d
1024, 1026 (Alaska 1988).
26. See Op. at 665 (quoting Cooperman v. Individual, Inc., 171 F.3d 43, 47 (1st Cir.1999)).

27. Op. at 665.

28. See Op. at 665-666.

29. See Op. at 666, note 18;  668-669.

30. Op. at 665 - 666 (citations omitted).

31. Op. at 666, note 16.

32. 5 Arthur Linton Corbin, Corbin on Contracts, § 1079, at 453-54 (1964) (citations omitted).

33. Id. at 454;  see also Restatement of Contracts § 344, at 565 (1933), as quoted in McBain v. Pratt,
514 P.2d 823, 827 (Alaska 1973) (“The damages for breach of an alternative contract are determined in
accordance with that one of the alternatives that is chosen by the party having an election, or, in case of
breach without an election, in accordance with the alternative that will result in the smallest recovery.”).

34. See Uchitel Co. v. Telephone Co., 646 P.2d 229, 236-37 (Alaska 1982);  McBain v. Pratt, 514 P.2d at
827.

35. See sources cited supra note 33.

36. See Op. at 666, note 18.

37. 2 Arthur Linton Corbin, Corbin on Contracts § 498, at 681 (1950) (citations omitted), as quoted in
Fleckenstein v. Faccio, 619 P.2d 1016, 1020 (Alaska 1980).

38. Merdes v. Underwood, 742 P.2d 245, 253 (Alaska 1987);  Fleckenstein v. Faccio, 619 P.2d at 1020.

39. 2 Arthur Linton Corbin, Corbin on Contracts § 498, at 681 (1950) (citations omitted), as quoted in
Fleckenstein v. Faccio, 619 P.2d at 1020.

40. See Martin v. Mears, 602 P.2d 421, 427-28 (Alaska 1979).

41. Id. (emphasis added).

42. The opinion's alternative theory of harmless error is unpersuasive because it impermissibly regards
Valdez Fisheries' proposed amended third-party complaint as if it had been submitted as a response to a
summary judgment motion.Here, Alyeska never filed a summary judgment motion and submitted no
materials outside the pleadings in seeking dismissal under Rule 12(b)(6). Valdez Fisheries, in turn did
not submit any materials outside the pleadings when opposing Alyeska's motion, and had no duty to do
so. Instead, it properly contended that dismissal under 12(b)(6) would be improper because its third-
party complaint satisfied Rule 8 by alleging that Valdez Fisheries and Alyeska had entered a contract to
lease the Sea Hawk facility and that Alyeska had later repudiated that contract. Valdez Fisheries also
properly maintained that it had never alleged that the details contained in its complaint were exhaustive;
 that it had not yet been given the opportunity to present evidence demonstrating the existence of the
contract because Alyeska had not filed a motion for summary judgment;  and that conversion of the
dismissal motion to one for summary judgment would therefore be premature.In response to these
arguments, the superior court dismissed Valdez Fisheries' contract claim under Rule 12(b)(6) without
looking beyond the pleadings, relying on the narrow (and legally incorrect) theory that a complaint must
specifically allege all steps of contract formation and that Valdez Fisheries' third-party complaint failed to
allege the required information. Even if the superior court had elected to look beyond the complaint and
convert Alyeska's Rule 12(b)(6) motion into a motion for summary judgment, moreover, the court would
have been obliged to give Valdez Fisheries notice of its intent to do so and a “reasonable opportunity to
present all material made pertinent to such a motion by Rule 56.” Alaska R. Civ. P. 12(b)(6). Given
these circumstances, it is fundamentally unfair to treat Valdez Fisheries' proposed amended complaint as
a proxy for a formal response to a summary judgment motion that Alyeska steadfastly declined to file.
The opinion's harmless error theory essentially condones a Rule 12(b)(6) dismissal by going beyond the
pleadings without giving Valdez Fisheries fair notice or a reasonable opportunity to present all pertinent
materials.

EASTAUGH, Justice.