The Supreme Court clarified that a stipulation pour autrui (a stipulation for the benefit of a third party) in a contract can be enforced by that third party if they communicate their acceptance to the obligor before the stipulation is revoked. In this case, the Court ruled that Alciso, as the intended beneficiary, had effectively communicated her acceptance by demanding that a stipulation allowing her to repurchase the property be included in the deed of sale, preserving her right to redeem the property under specific conditions. The ruling underscores the importance of timely and clear communication of acceptance to secure rights under contractual stipulations intended for their benefit.

Unraveling a Real Estate Deal: Did a Seller Retain the Right to Buy Back Her Land?

This case revolves around a dispute over land in La Trinidad, Benguet, which had been sold several times. Rose Ogas Alciso (Alciso) initially owned the property. Over time the property was transferred to different individuals, eventually ending up with the Spouses Dominador and Lilia Narvaez (Spouses Narvaez). Alciso contended that she had a right to repurchase the land, based on a stipulation in the deed of sale between a prior owner and the Spouses Narvaez. The central legal question is whether this stipulation constituted a valid stipulation pour autrui, granting Alciso the right to repurchase the property.

The heart of the matter lies in Article 1311 of the Civil Code, particularly paragraph 2, which addresses stipulations pour autrui. This provision states that a third person can demand fulfillment of a contractual stipulation in their favor, provided they communicate their acceptance to the obligor before it’s revoked. To unpack this further, let’s explore the six key requisites that must be present for a valid stipulation pour autrui, as established in Limitless Potentials, Inc. v. Quilala:

• A stipulation in favor of a third person
• The stipulation is part of, but not the entire contract
• The contracting parties clearly and deliberately conferred a favor to the third person, which is not merely an incidental benefit
• The favor is unconditional and uncompensated
• The third person communicated their acceptance of the favor before its revocation
• The contracting parties do not represent, or are not authorized by, the third party

In this case, the Court found that all these requisites were met. The deed of sale between Bate (a prior owner) and the Spouses Narvaez included a clause that carried over Alciso’s intent to buy back the property, subject to the conditions the Spouses Narvaez might impose. The critical point of contention was whether Alciso had communicated her acceptance of this stipulation. The Spouses Narvaez argued that Alciso’s acceptance was, at best, implied, not the explicit communication required by law.

However, the Supreme Court sided with the lower courts’ factual finding that Alciso had indeed communicated her acceptance. This communication occurred when she demanded the inclusion of the repurchase stipulation in the deed and subsequently informed the Spouses Narvaez of her desire to repurchase the property. Citing Florentino v. Encarnacion, Sr., the Court emphasized that acceptance could be in any form, implied or express, as long as it occurs before the stipulation is revoked. Therefore, her actions were sufficient to demonstrate her acceptance of the benefit conferred upon her.

Building on this principle, the Court addressed the application of Article 448 of the Civil Code, which deals with situations where a builder, sower, or planter acts in good faith on land owned by another. The Court of Appeals had applied this article, suggesting Alciso, after repurchasing the land, could either appropriate the commercial building built by the Spouses Narvaez upon payment of its value or compel them to buy the land. This application was deemed incorrect by the Supreme Court. Article 448 does not apply when the owner of the land is the builder. To compel the Spouses Narvaez to buy their own land would be absurd. Here, the terms of the 14 August 1981 Deed of Sale of Realty showed that Bate and the Spouses Narvaez entered into a sale with right of repurchase, where Bate transferred his right of repurchase to Alciso.

Instead, the Court clarified that the relevant provisions are Articles 1606 and 1616 of the Civil Code, which govern sales with the right of repurchase (pacto de retro sale). Alciso, in exercising her right of redemption, must reimburse the Spouses Narvaez for (1) the original sale price, (2) expenses of the contract, (3) legitimate payments made due to the sale, and (4) necessary and useful expenses incurred on the property, which included the cost of the commercial building that augmented the land’s value. Although Alciso’s initial attempt to repurchase the property was deemed insufficient due to a lack of formal tender of payment, the Court, invoking the third paragraph of Article 1606, granted her a 30-day window from the finality of the decision to properly exercise her right of repurchase, given her initial misunderstanding that the transaction was a mortgage and not a pacto de retro sale.

FAQs

What is a stipulation pour autrui?	It’s a provision in a contract that confers a benefit to a third party who is not directly involved in the agreement. The third party can demand the fulfillment of this benefit once they communicate their acceptance to the obligor before the stipulation is revoked.
What are the key elements for a valid stipulation pour autrui?	There must be a clear stipulation in favor of a third person, the stipulation must be a part of the contract, the contracting parties must intentionally confer a benefit, the benefit must be unconditional, the third party must communicate their acceptance, and the contracting parties must not be representing the third party.
How did Alciso communicate her acceptance in this case?	The Court found that Alciso communicated her acceptance by demanding the inclusion of a clause allowing her to repurchase the property in the deed of sale and by subsequently informing the Spouses Narvaez of her intent to repurchase.
Why did the Court reject the application of Article 448?	Article 448 applies when a builder constructs on land owned by another. Since the Spouses Narvaez built on land they owned, applying Article 448 would have been inappropriate and illogical.
What legal provisions govern sales with the right to repurchase?	Articles 1606 and 1616 of the Civil Code govern sales with the right to repurchase, outlining the period for redemption and the amounts the seller must reimburse the buyer to exercise their right.
What must Alciso do to exercise her right of redemption?	To exercise her right, Alciso must pay the original sale price, expenses of the contract, legitimate payments made due to the sale, and the necessary and useful expenses incurred on the property, including the value of the commercial building.
What was the significance of the 30-day window granted to Alciso?	Given that Alciso initially believed the transaction was a mortgage, the Court invoked Article 1606, providing her a 30-day window from the finality of the decision to repurchase the property, ensuring fairness in exercising her right.
What happens if Alciso does not repurchase the property within 30 days?	If Alciso fails to exercise her right of repurchase within the 30-day period, the Spouses Narvaez will retain full ownership of the property, free from any encumbrance related to Alciso’s right of redemption.

This case serves as a vital lesson on the importance of clearly establishing and communicating the intent to benefit from contractual stipulations, particularly in real estate transactions. By asserting her right and acting in a timely manner, Alciso preserved her chance to reclaim the land she had previously owned. The Supreme Court, recognizing her manifested intent and the principles of equity, offered her a final opportunity to redeem the property.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: SPS. DOMINADOR R. NARVAEZ AND LILIA W. NARVAEZ VS. SPS. ROSE OGAS ALCISO AND ANTONIO ALCISO, G.R. No. 165907, July 27, 2009