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DKC HOLDINGS CORPORATION v. CA

FACTS:

The case involves a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila. The land was originally owned by Encarnacion Bartolome, the deceased mother of respondent Victor Bartolome. Petitioner DKC Holdings Corporation entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome on March 16, 1988, where DKC was given the option to lease or lease with purchase the land within a two-year period. The contract stated that DKC would pay P3,000.00 per month for the reservation of its option. Petitioner regularly paid the monthly fee to Encarnacion until her death in January 1990. After her death, DKC continued to make payments to Victor Bartolome, but he refused to accept them. Victor executed an Affidavit of Self-Adjudication, canceling the title and transferring it to his name. DKC served notice to Victor that it was exercising its option to lease the property, but he refused to accept the rent and surrender possession. DKC filed a complaint for specific performance and damages against Victor and the Register of Deeds. The lower court dismissed the complaint and ordered DKC to pay Victor P30,000.00 as attorney's fees. DKC appealed to the Court of Appeals, which affirmed the lower court's decision. DKC filed a petition for review on certiorari, raising several errors in the decision of the Court of Appeals. The issue in the case is whether the Contract of Lease with Option to Buy was terminated upon the death of Encarnacion Bartolome or if it still binds her sole heir, Victor Bartolome.

ISSUES:

  1. Whether the Contract of Lease with Option to Buy entered into by Encarnacion Bartolome terminated upon her death or binds her sole heir, Victor Bartolome, even after her demise.

  2. Whether petitioner (DKC Holdings Corporation) complied with its obligations under the contract and the requisites to exercise its option.

  3. Whether the existence of a registered tenancy was fatal to the validity of the contract.

  4. Whether petitioner was liable for attorney's fees.

RULING:

  1. The Supreme Court ruled that the Contract of Lease with Option to Buy did not terminate upon the death of Encarnacion Bartolome and binds her sole heir, Victor Bartolome, according to Article 1311 of the Civil Code. The rights and obligations under the contract are transmissible by their nature and there was no stipulation or legal provision to the contrary.

  2. The Supreme Court found that petitioner complied with its obligations under the contract by paying the reservation fees and the monthly rental fee, and by serving notice of its intention to exercise its option to lease the property within the two-year period.

  3. The issue of registered tenancy was deemed irrelevant to the case at hand by the Supreme Court, noting that the motion filed by the alleged tenant, Andres Lanozo, was denied by the lower court and was not appealed.

  4. The Supreme Court did not find petitioner liable for attorney's fees, setting aside the award granted by the lower courts.

PRINCIPLES:

  1. Article 1311 of the Civil Code - Contracts take effect only between the parties, their assigns and heirs, except where rights and obligations arising from the contract are not transmissible by their nature, stipulation, or provision of law.

  2. Transmissibility of Contractual Obligations - In the absence of contractual stipulation or legal provision making rights and obligations under a contract intransmissible, and unless characterized as personal acts, the obligations are normally transmissible to heirs.

  3. Performance in Case of Death - Obligations which do not require a personal act by the deceased party may be performed by the heir or personal representative of the deceased.

  4. Compliance with Contractual Obligations - Compliance is established through proper payment of reservation fees, monthly rents and timely notice of the exercise of the contractual option.

  5. Specific Performance - The legal remedy that compels a party to execute a contract according to the precise terms agreed upon or to perform it as significantly similar to the original intentions of the parties.

  6. Definitive Privity of Interest - An heir succeeds to the rights and obligations of their predecessor and is bound by the valid contracts entered into by the decedent.

  7. Annotation and Registration of Property Interests - The obligation to register and annotate a contract, to provide legal notice to third parties, and enforce property rights against successors-in-interest.