G.R. No. L-47968 May 9, 1988
LINA MONTILLA, petitioner, vs. COURT OF APPEALS and EMILIO ARAGON, JR., respondents.

FACTS

Emilio Aragon, Jr. filed a complaint to compel Lina Montilla to comply with an alleged verbal contract to sell a parcel of land. Aragon claimed that in June 1969, Montilla orally offered to sell the lot for P57,650.00, payable within three years, provided he constructed a house on it and paid nominal monthly rental. He alleged acceptance, fulfillment of conditions, and tender of payment, which Montilla refused. In her answer, Montilla categorically denied ever entering into such an agreement. She asserted affirmative defenses, including the unenforceability of the alleged oral agreement under the Statute of Frauds and failure of the complaint to state a cause of action due to lack of a consideration distinct from the price as required by Article 1479 of the Civil Code. The trial court, after a preliminary hearing on these defenses, denied the implicit motion to dismiss. It erroneously opined that Montilla’s answer, by raising the Statute of Frauds, admitted the offer to sell, thereby ratifying the oral contract and taking it out of the Statute’s scope. After trial, judgment was rendered against Montilla, which the Court of Appeals affirmed.

ISSUE

The core issues were whether the trial and appellate courts committed reversible errors in: (1) holding that Montilla’s answer admitted the existence of the verbal contract; (2) ruling that the interlocutory order denying the motion to dismiss became conclusive due to her inaction; and (3) misappreciating the evidence regarding the existence of the contract.

RULING

The Supreme Court reversed the decisions of the lower courts. On the first error, the Court held that no admission of the verbal contract could be inferred from Montilla’s answer. Her specific and unequivocal denial of the agreement’s existence was paramount. Raising the Statute of Frauds as an affirmative defense was merely a hypothetical argument—assuming, for argument’s sake, an agreement existed, it was unenforceable. This conditional assertion cannot be construed as an unconditional factual admission. On the second error, the trial court incorrectly applied principles of res judicata or conclusiveness of judgment to its interlocutory order of December 5, 1972. The doctrine applies only to final and executory judgments or orders, not to interlocutory orders which are subject to revision. Montilla’s failure to seek reconsideration did not render the order conclusive on the merits. On the third error, the Supreme Court found the evidence failed to substantiate Aragon’s claim. The testimony and circumstances, including Montilla’s consistent denial and the lack of a written memorandum, convincingly demonstrated the absence of any oral promise to sell. Therefore, Aragon’s action was unfounded. The complaint was dismissed.