G.R. No. 118248 ; April 5, 2000
DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents.

FACTS

Petitioner DKC Holdings Corporation entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome over a parcel of land on March 16, 1988. The contract granted DKC a two-year option period to either lease or purchase the property, during which it paid a monthly reservation fee of P3,000. Encarnacion died in January 1990, and her sole heir, private respondent Victor Bartolome, executed an Affidavit of Self-Adjudication, transferring the title to his name. Victor refused to accept further reservation fees from DKC.
Within the option period, on March 14, 1990, DKC served notice upon Victor via registered mail, exercising its option to lease the property and tendering the rental fee. Victor refused acceptance. DKC subsequently filed a complaint for specific performance and damages to compel Victor to honor the contract and to annotate it on the title. The Regional Trial Court dismissed the complaint, a decision affirmed by the Court of Appeals, holding the contract was terminated upon Encarnacion’s death and did not bind Victor.

ISSUE

Whether the Contract of Lease with Option to Buy was terminated upon the death of Encarnacion Bartolome and does not bind her heir, Victor Bartolome.

RULING

No. The Supreme Court reversed the lower courts, ruling that the contract binds the heir, Victor Bartolome. Under Article 1311 of the Civil Code, contracts are generally binding on the parties, their assigns, and heirs. The contractual obligation to respect the option, which was to be exercised within a fixed period, is transmitted to the heir as part of the inheritance. The death of the obligor does not, by itself, extinguish the obligation unless it is of a strictly personal nature. The option clause here was not personal to Encarnacion but was an integral property right attached to the land, which passed to her heir.
The Court further held that service of the notice to exercise the option upon the heir, Victor, was valid. The contract did not specify that notice must be served personally upon the original lessor. Service by registered mail upon the successor-in-interest who had already adjudicated the property to himself was sufficient and within the stipulated period. The Court also found the contract to be a valid bilateral agreement supported by a monthly consideration, not a one-sided pact. The issue of a purported agricultural tenancy was deemed not proper for resolution in this case, as the motion to intervene on that ground had been denied and was not appealed. Victor Bartolome was ordered to deliver possession under the lease, surrender the title for annotation of the contract, and pay costs.