Paterno v Jao Yan (Obligations and contracts)

Paterno v Jao Yan 

GR No. L-12218 

February 28, 1961  

FACTS:  

(1) By a notarized contract under date 3 of June 1948, the appellees, represented by their attorney-in-fact, Martina Paterno, leased to the appellant Jao Yan a parcel of land situated at a corner of Escolta Street and Plaza Moraga, of the City of Manila, covered by Transfer Certificate of Title No. 7768. The lease was to be for a period of seven (7) years, commencing on the 15th of July, 1948. The leasee bound himself to construct a building "to be made of strong wooden materials" on the leased premises, which would become property of the lessors at the termination of the lease; to pay P5,500,00 monthly rental, and all taxes, charges, and assessments on the building. 

(2) By complaint dated 20 May 1955, subsequently amended on 20 September 1955, the lessors filed action to recover from the lessee rentals in the sum P23,250.00 due for the months of March to June, 1955 and the first days of July, 1955; P7,680 for real estate taxes and penalties due on the building for the years 1953 to 1955; P2,500.00 attorney's fees; and for the recovery of the building constructed on the leased land.. 

(3) Defendant lessee averred, in his answer, that the original written contract had been orally extended from seven (7) to ten (10) years, in consideration of his constructing a semi-concrete building (instead of the wooden one originally contemplated), as he actually had done, at a cost of P13,000.00, higher than the original wooden structure would have cost; that the rentals due had been retained by him because of plaintiff's refusal to recognize the modified contract; that [plaintiff's refusal to recognize the modified contract; that plaintiffs maliciously garnished the rents due from his sub-lessees; and prayed for judgment compelling plaintiffs to recognize the modified contract and to pay him damages, material and moral..  

Applicable law: 

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

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;      

(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 of 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. 

(3) Those where both parties are incapable of giving consent to a contract.  

ISSUE: WON the Statute of Frauds is applicable to the lease agreement (oral extension)   

RTC: Yes, the contract is unenforceable. At the trial, defendant offered testimonial evidence to support his claim that the original written contract had been subsequently modified by oral agreement between the parties in the manner alleged in the answer; he also submitted documents filed with the City Engineer's office, regarding the semi-concrete building, conformably to the modificatory oral agreement.  

The RTC dismissed such testimony.   

HELD: No because there has already been partial performance.  

RATIO: 

(1) Partial performance takes an oral contract out of the scope of the Statute Frauds. "The taking of possession by the lessee and the making of valuable improvement, and the like, on the faith of the oral agreement, may operate to the case out of the prohibition of the statute, for it would be gross fraud to permit the lessor in such a case to avoid the lease ." (49 Am. Jur. p. 809, sec. 106, case cited) The expenditure of money by a tenant in making improvement on the premises on the faith of an oral agreement for a lease for a further term, may be viewed not only as constituting in itself an act of part performance but as furnishing strong if not conclusive evidence that possession is continued under the oral contract and not as a tenant holding over under the original lease. (49 Am. Jur. 810; 33 A.L.R.. 1489, 1501).