G.R. No. 173114, September 8, 2008
JAYSON DANDAN, petitioner, vs. ARFEL REALTY & MANAGEMENT CORP., RAFAEL FELIX and SPS. EMERITA and CARLITO SAURO, respondents.

FACTS

1. On March 7, 1992, respondent Arfel Realty & Management Corp. (Arfel Realty), represented by Rafael Felix, sold a parcel of land in Las Piñas to petitioner Jayson Dandan for P320,000.00, evidenced by a Deed of Absolute Sale.
2. The same lot was previously subject to a Contract to Sell between Arfel Realty and respondent spouses Emerita and Carlito Sauro (the Sauros). Arfel Realty claimed the Sauros had an unpaid balance, while the Sauros claimed full payment and demanded the title.
3. On April 10, 1992, Dandan and Arfel Realty executed a Memorandum of Agreement (the Agreement). In it, Dandan agreed to assume all liabilities arising from the Deed of Absolute Sale and to hold Arfel Realty free from any suit or judgment related to that sale. The consideration stated was the balance due from Arfel Realty’s previous sale to the Sauros.
4. The Sauros filed a complaint for specific performance against Arfel Realty before the Housing and Land Use Regulatory Board (HLURB). Arfel Realty filed a third-party complaint against Dandan, seeking indemnification under the Agreement for any amount it might be ordered to pay the Sauros.
5. The HLURB ruled in favor of the Sauros, ordering Arfel Realty to refund their payments. It also upheld the Agreement, holding Dandan liable to indemnify Arfel Realty for the refund amount.
6. Dandan appealed to the Office of the President (OP), which nullified the Agreement for lack of consideration. The OP found that Dandan, having already acquired the property via the Deed of Absolute Sale, received no benefit from the Agreement and likely signed it as a favor without understanding its legal implications.
7. Arfel Realty appealed to the Court of Appeals (CA), which reversed the OP. The CA reinstated the HLURB decision, holding the Agreement valid and binding. Dandan’s petition for review to the Supreme Court followed.

ISSUE

Whether the Memorandum of Agreement dated April 10, 1992, between Jayson Dandan and Arfel Realty is a valid and enforceable contract.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals, thereby sustaining the validity of the Memorandum of Agreement and holding Dandan liable under its terms.
1. The Agreement is a Valid Contract: The Court found all essential elements of a contract under Article 1318 of the Civil Code were present: (a) consent of the parties (Dandan and Arfel Realty), (b) a certain object (the assumption of liabilities), and (c) a cause or consideration.
2. Consideration is Present: The cause or consideration for Dandan’s obligation under the Agreement was the balance of the purchase price still due from the Sauros to Arfel Realty. By assuming Arfel Realty’s potential liabilities to the Sauros, Dandan essentially secured his title to the property, which was clouded by the prior Contract to Sell. This constituted a legal benefit for Dandan and a legal detriment to Arfel Realty (forbearance from pursuing the Sauros’ balance), which is sufficient consideration.
3. Consent was Not Vitiated: Dandan’s claim that he signed the Agreement as a mere favor without understanding its legal import does not invalidate his consent. The Agreement was a straightforward one-page document, notarized, and its terms were clear. Mistake, to vitiate consent, must refer to the substance of the contract or the principal conditions that moved the parties. A simple mistake of law or a failure to fully grasp the consequences, as alleged here, does not invalidate consent. As a notarized document, the Agreement enjoys the presumption of regularity and due execution.
4. Binding Effect: The Court emphasized that parties are bound by the contracts they enter into. The fact that the stipulations may later prove disadvantageous does not relieve a party of its obligations. Dandan, as a party, is presumed to have taken ordinary care of his concerns and to have informed himself of the document’s contents before signing.
DOCTRINE:
A contract requires consent, a certain object, and a cause or consideration. The cause is the essential reason for the contract, which may consist in the promise of a thing or service by the other party. A contract duly executed, especially one that is notarized, is presumed valid and binding. A party’s subsequent plea that he did not fully understand the legal consequences of his agreement, absent a showing of vitiated consent (e.g., through mistake as to the principal object or condition), is not a ground for nullity. Parties are obliged to fulfill their contractual commitments.