CIVIL LAW REVIEW 2 | Dean VMP

Case Digests Nos. 58-74

February 15, 2021

58. CARMELCRAFT CORPORATION VS. NLRC AND CARMELCRAFT

EMPLOYEES UNION, PROGRESSIVE FEDERATION OF LABOR 
G.R. Nos. 90634-35, June 06, 1990 264 Phil. 763

DOCTRINE:

Quitclaims of the workers’ benefits will not estop them from asserting the same.—
The subordinate position of the individual employee vis-a-vis management renders
him especially vulnerable to its blandishments and importunings, and even
intimidations, that may result in his improvidently if reluctantly signing over benefits
to which he is clearly entitled. Recognizing this danger, we have consistently held
that quitclaims of the workers’ benefits will not estop them from asserting them just
the same on the ground that public policy prohibits such waivers.

Autonomy of Contracts – principle that the contracting parties are free to enter into
a contract and to establish stipulations, clauses and terms as they may deem
convenient save those that are contrary to law, public policy, morals, good customs
and public order. 

FACTS: 

After its registration as a labor union, the Carmelcraft Employees Union did not get
recognition from the petitioners. Consequently, it filed a petition for certification
election in June 1987. On July 13, 1987, Carmelcraft Corporation, through its
president and general manager, Carmen Yulo, announced in a meeting with the
employees that it would cease operations on August 13, 1987, due to serious
financial losses. 

On August 17, 1987, the union filed a complaint with the Department of Labor
against the petitioners for illegal lockout, unfair labor practice and damages,
followed the next day with another complaint for payment of unpaid wages,
emergency cost of living allowances, holiday pay, and other benefits. On November
29, 1988, the Labor Arbiter declared the shutdown illegal and violative of the
employees’ right to self- organization. The claim for unpaid benefits was also
granted. 

The contention of the petitioners that the employees are estopped from claiming the
alleged unpaid wages and other compensation. This claim is based on the waivers
supposedly made by the complainants on the understanding that “the management
will implement prospectively all benefits under existing labor standard laws.” The
petitioners argue that this assurance provided the consideration that made the
quitclaims executed by the employees valid. They add that the waivers were made
voluntarily and contend that the contract should be respected as the law between
the parties. 

ISSUE:

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Whether the employees are estopped from any claim brought about by their mutual
understanding with the employer. (Quitclaims made by employees) 

RULING:

The Court ruled that the reason invoked by the petitioner company to justify the
cessation of its operations is preposterous. Its justification is that it sustained losses
in the amount of only P1,603.88. Significantly, the company is capitalized at P3
million. Considering such a substantial investment, we hardly think that a loss of the
paltry sum of less than P2,000.00 could be considered serious enough to call for the
closure of the company. 

The real reason for the decision of the petitioners to cease operations was the
establishment of respondent Carmelcraft Employees Union. It was apparently
unwelcome to the corporation, which would rather shut down than deal with the
union. The act of the petitioners was an unfair labor practice prohibited by Article
248 of the Labor Code, to wit: 

ART. 248. Unfair labor practices of employers. - It shall be unlawful for an

employer to commit any of the following unfair labor practice: 
(a) To interfere with, restrain or coerce employees in the exercise of their
right to self-organization; 
More importantly, it was a defiance of the constitutional provision
guaranteeing to workers the right to self-organization and to enter into
collective bargaining with management through the labor union of their
own choice and confidence. And, indeed, even without such motivation,
the closure cannot be justified because the claimed losses are obviously
not serious. In this situation, the employees are entitled to separation pay
at the rate of one-half month for every year of service under Art. 283 of
the Labor Code. 

The contention of the petitioners that the employees are estopped from claiming the
alleged unpaid wages and other compensation must also be rejected. This claim is
based on the waivers supposedly made by the complainants on the understanding
that "the management will implement prospectively all benefits under existing labor
standard laws." The petitioners argue that this assurance provided the consideration
that made the quitclaims executed by the employees valid. They add that the
waivers were made voluntarily and contend that the contract should be respected as
the law between the parties. 

Even if voluntarily executed, agreements are invalid if they are contrary to public
policy. The protection of labor is one of the policies laid down by the Constitution not
only by specific provision but also as part of social justice. The Civil Code itself
provides: 

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ART. 6. Rights may be waived, unless the waiver is contrary to law, public
order, public policy, morals, or good customs, or prejudicial to a third
person with a right recognized by law. 

ART. 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public
policy. 

The subordinate position of the individual employee vis-a-vis management renders

him especially vulnerable to its blandishments and importunings, and even
intimidations, that may result in his improvidently if reluctantly signing over benefits
to which he is clearly entitled. Recognizing this danger, we have consistently held
that quitclaims of the workers’ benefits will not estop them from asserting them just
the same on the ground that public policy prohibits such waivers. 

That the employee has signed a satisfaction receipt does not result in a waiver; the
law does not consider as valid any agreement to receive less compensation than
what a worker is entitled to recover. A deed of release or quitclaim cannot bar an
employee from demanding benefits to which he is legally entitled. 
Release and quitclaim is inequitable and incongruous to the declared public policy of
the State to afford protection to labor and to assure the rights of workers to security
of tenure. 

WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED,

with costs against the petitioner. 

59. FELIX PLAZO URBAN POOR SETTLERS COMMUNITY ASSOCIATION,

INC., petitioner, vs. ALFREDO LIPAT, SR. and ALFREDO LIPAT, JR.,
respondents.
G.R. No. 182409. March 20, 2017. REYES, J.

DOCTRINE: 

From the time the contract is perfected, all parties privy to it are bound not only to
the fulfillment of what has been expressly stipulated but likewise to all
consequences which, according to their nature, may be in keeping with good faith,
usage and law.

FACTS: 

On December 13, 1991, Lipat Sr., as represented by Lipat Jr., executed a Contract to
Sell (CTS) in favor of the petitioner, as represented by its President, Manuel Tubao
(Tubao), whereby the former agreed to sell to the latter two parcels of land in Naga
City for a consideration of P200.00 per square meter.   As stipulated in the CTS, the

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petitioner had 90 days to pay in full the purchase price of the subject properties;
otherwise, the CTS shall automatically expire. The period, however, elapsed without
payment of the full consideration by the petitioner.

According to the petitioner, the 90-day period provided in the CTS was subject to
the condition that the subject properties be cleared of all claims from third persons
considering that there were pending litigations involving the same.  Upon the expiry
of the 90-day period, and despite the failure to clear the subject properties from the
claims of third persons, the petitioner contributed financial assistance for the
expenses of litigation involving the subject properties with the assurance that the
CTS will still be enforced once the cases are settled.

After the termination of the cases involving the subject properties, however, the
respondents refused to enforce the CTS on the ground that the same had expired
and averred that there was no agreement to extend its term.  Consequently, the
petitioner filed a case for Specific Performance and Damages with Prayer for the
Issuance of Preliminary Injunction against the respondents on June 10, 1997 before
the Regional Trial Court (RTC) of Naga City.

For their defense, the respondents alleged that the CTS was not enforced due to the
petitioner’s failure to pay the P200.00 per sq. m. selling price before the expiration
of its term. Moreover, the respondents claimed that the so called “financial
assistance” they received from the petitioner’s members was in the nature of a loan
and that it has nothing to do with the alleged extension of their CTS.

ISSUE: 

Whether or not the seller can be compelled to enforce the CTS even after the
expiration of the 90 day period stipulated in the contract.

RULING: 

No.  The contract executed by the parties is the law between them. Consequently,
from the time the contract is perfected, all parties privy to it are bound not only to
the fulfillment of what has been expressly stipulated but likewise to all consequences
which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that the above mentioned contract is in the nature of a CTS. As

such, the obligation of the seller to sell becomes demandable only upon the
occurrence of the suspensive condition. In the present case, the suspensive
condition is the payment in full of the purchase price by the petitioner prior to the
expiration of the 90-day period stipulated in their CTS, which the latter failed to do
so.  

60.  Acol vs. Philippine Commercial Credit Card, Incorporated

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G.R. No. 135149. July 25, 2006. CORONA, J.:

DOCTRINE:

A stipulation in a credit card that the cardholder’s responsibility for all charges made
through the use of his card shall continue until after a reasonable time after receipt
by the Card Issuer of written notice of loss of the Card is repugnant to public policy
since the effectivity of the cancellation of the lost card rests on an act entirely
beyond the control of the card-holder.  Article 1306 of the Civil Code prohibits
contracting parties from establishing stipulations contrary to public policy.

FACTS: 

On August 20, 1982, petitioner Manuel Acol applied with respondent for a Bankard
credit card and extension. Both were issued to him shortly thereafter. For several
years, he regularly used this card, purchasing from respondent’s accredited
establishments and paying the corresponding charges for such purchases.

Late in the evening of April 18, 1987, petitioner discovered the loss of his credit
card.  After exhausting all efforts to find it, the first hour of the following day, April
19, 1987, a Sunday, he called up respondent’s office and reported the loss.  The
representative he spoke to told him that his card would be immediately included in
the circular of lost cards.

On April 21, 1987, a day before receiving the written notice, respondent issued a
special cancellation bulletin informing its accredited establishments of the loss of the
cards of the enumerated holders, including petitioner’s.  Unfortunately, it turned out
that petitioner’s card on April 19 and commodities worth P76,067.28.  Petitioner
informed respondent he would not pay for the purchases made after April 19, 1987,
the day he notified respondent of the loss.  

At first, respondent agreed to reverse the disputed billings, pending the result of an
investigation of petitioner’s account. After the investigation and review, the
respondent, through its Executive Vice-President and General Manager, Atty. Serapio
S. Gabriel, confirmed that it was not the petitioner who used his Bankard on April 19
and 20, 1987.  Nonetheless, respondent reversed its earlier position to delete the
disputed billings and insisted on collecting within 15 days from notice. It alleged that
it was the most “practicable procedure and policy of the company.” It cited provision
no. 1 of the “Terms and Conditions Governing The Issuance and Use of the Bankard”
found at the back of the application form: x x x Holder’s responsibility for all charges
made through the use of the card shall continue until the expiration or its return to
the Card Issuer or until a reasonable time after receipt by the Card Issuer of written
notice of loss of the Card and its actual inclusion in the Cancellation Bulletin. 

Petitioner, through his lawyer, wrote respondent to deny liability for the disputed
charges.  In short order, however, respondent filed suit in the Regional Trial Court

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(RTC) of Manila against petitioner for the collection of P76,067.28, plus interest and
penalty charges.

ISSUE: 

Whether or not the contested provision in the contract (provision no. 1 of the Terms
and Conditions) was valid and binding on the petitioner, given that the contract was
one of adhesion.

RULING: 

No.  Prompt notice by the cardholder to the credit card company of the loss or theft
of his card should be enough to relieve the former of any liability occasioned by the
unauthorized use of his lost or stolen card.  To require the cardholder to still pay for
the unauthorized purchases after he has given prompt notice of the loss or theft of
his card to the credit card company would simply be unfair and unjust. The Court
cannot give its assent to such a stipulation which could clearly run against public
policy.

Under such a stipulation, petitioner could have theoretically done everything in his
power to give respondent the required written notice. But if respondent took a
“reasonable” time (which could be indefinite) to include the card in its cancellation
bulletin, it could still hold the cardholder liable for whatever unauthorized charges
were incurred within that span of time. This would have been truly iniquitous,
considering the amount respondent wanted to hold petitioner liable for.

Article 1306 of the Civil Code prohibits contracting parties from establishing
stipulations contrary to public policy. The assailed provision was just such a
stipulation. It is without any hesitation therefore that we strike it down.

61. PILIPINO TELEPHONE CORPORATION (PILTEL) VS. TECSON

G. R. No. 156966 May 7, 2004. VITUG, J.:

DOCTRINE:
The contract herein involved is a contract of adhesion. But such an agreement is not
per se inefficacious. The rule instead is that, should there be ambiguities in a
contract of adhesion, such ambiguities are to be construed against the party that
prepared it. A contract of adhesion is just as binding as ordinary contracts. Contracts
of adhesion are not prohibited even as the courts remain careful in scrutinizing the
factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. 

FACTS:

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On various dates in 1996, Delfino C. Tecson applied for 6 cellular phone

subscriptions with PILTEL, which applications were approved and covered by 6
mobiline service agreements. In 2001, Tecson filed with the RTC of Iligan City,
Lanao Del Norte, a complaint against PILTEL for a “Sum of Money and Damages.”
PILTEL moved for the dismissal of the complaint on the ground of improper venue,
citing a provision in the mobiline service agreements that, “Venue of all suits arising
from this Agreement or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber shall be in the proper courts of Makati,
Metro Manila. Subscriber hereby expressly waives any other venues." The RTC
denied PILTEL’s motion to dismiss. The CA affirmed the RTC decision.

ISSUE:

Whether or not the contract stipulation on venue is valid (and may be used as a
ground to dismiss the case)

HELD:

Yes. The stipulation is valid, and the case shall be dismissed on the ground of
improper venue. Section 4, Rule 4, of the Revised Rules of Civil Procedure allows the
parties to agree and stipulate in writing, before the filing of an action, on the
exclusive venue of any litigation between them. Such an agreement would be valid
and binding provided that the stipulation on the chosen venue is exclusive in nature
or in intent, that it is expressed in writing by the parties thereto, and that it is
entered into before the filing of the suit.

The provision contained in paragraph 22 of the "Mobile Service Agreement," a

standard contract made out by petitioner PILTEL to its subscribers, apparently
accepted and signed by respondent, states that the venue of all suits arising from
the agreement, or any other suit directly or indirectly arising from the relationship
between PILTEL and subscriber, "shall be in the proper courts of Makati, Metro
Manila." The added stipulation that the subscriber "expressly waives any other
venue" should indicate, clearly enough, the intent of the parties to consider the
venue stipulation as being preclusive in character. The appellate court, however,
would appear to anchor its decision on the thesis that the subscription agreement,
being a mere contract of adhesion, does not bind respondent on the venue
stipulation. 

Indeed, the contract herein involved is a contract of adhesion. But such an

agreement is not per se inefficacious. The rule instead is that, should there be
ambiguities in a contract of adhesion, such ambiguities are to be construed against
the party that prepared it. If, however, the stipulations are not obscure, but are
clear and leave no doubt on the intention of the parties, the literal meaning of its
stipulations must be held controlling.

A contract of adhesion is just as binding as ordinary contracts. It is true that this

Court has, on occasion, struck down such contracts as being assailable when the

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weaker party is left with no choice by the dominant bargaining party and is thus
completely deprived of an opportunity to bargain effectively. Nevertheless, contracts
of adhesion are not prohibited even as the courts remain careful in scrutinizing the
factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. 

In the case at bar, respondent secured six (6) subscription contracts for cellular
phones on various dates. It would be difficult to assume that, during each of those
times, respondent had no sufficient opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent continued, in fact, to acquire in
the pursuit of his business subsequent subscriptions and remained a subscriber of
petitioner for quite sometime.

62. PNB (Petitioner) vs CA and Padilla (Respondent)

G. R. No. 142381, October 15, 2003. Grino-Aquino, J.

DOCTRINE:

CB Circular No. 905, Series of 1982 removed the Usury law ceiling on interest rates
— but it did not authorize the PNB, or any bank for that matter, to unilaterally and
successively increase the agreed interest rates from 18% to 48% within a span of
four (4) months, in violation of P.D. 116 which limits such changes to "once every
twelve months.”

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest
rate on the private respondent's loan, violated the mutuality of contracts ordained in
Article 1308 of the Civil Code: "ART. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them."
 
FACTS:

In July 1982, the private respondent applied for, and was granted by petitioner PNB,
a credit line of 321.8 million, secured by a real estate mortgage, for a term of two
(2) years, with 18% interest per annum. Private respondent executed in favor of the
PNB a Credit Agreement, two (2) promissory notes in the amount of P900,000.00
each, and a Real Estate Mortgage Contract.

The Promissory Notes, in turn, uniformly authorized the PNB to increase the
stipulated 18% interest per annum "within the limits allowed by law at any time
depending on whatever policy it [PNB] may adopt in the future; Provided, that, the
interest rate on this note shall be correspondingly decreased in the event that the
applicable maximum interest rate is reduced by law or by the Monetary Board."

The Real Estate Mortgage Contract likewise provided that:

"(k) INCREASE OF INTEREST RATE

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"The rate of interest charged on the obligation secured by this mortgage as well as
the interest on the amount which may have been advanced by the MORTGAGEE, in
accordance with the provisions hereof, shall be subject during the life of this
contract to such an increase within the rate allowed by law, as the Board of
Directors of the MORTGAGEE may prescribe for its debtors."

Before the expiration of the credit line, the respondent complied with the conditions
for renewal and requested that "the outstanding balance of credit line be renewed
for another period of two (2) years under the same arrangement" and that "the
increase of the interest rate of my mortgage loan be from 18% to 21%".  After
several payments to the loan, Padilla requested to the increase in the rate of interest
from 18% be fixed at 21% or 24%. However, herein denied the request and
continuously increased the interest rate from 18% to 32%, then 32% to 41% and
from 41%-48%.

Thereafter, the respondent filed a complain in the RTC. The trial court rendered
judgment, dismissing the complaint because the increases of interest were properly
made. On appeal, the Court of Appeals reversed the trial court.

ISSUE:

Whether the bank, within the term of the loan which it granted to the private
respondent, may unilaterally change or increase the interest rate stipulated in the
agreement?

HELD:
 
No.  In this case, PNB, over the objection of the private respondent, and without
authority from the Monetary Board, within a period of only four (4) months,
increased the 18% interest rate on the private respondent's loan obligation three (3)
times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in
November 1984. Those increases were null and void, for if the Monetary Board itself
was not authorized to make such changes oftener than once a year, even less so
may a bank which is subordinate to the Board.

In addition, the unilateral action of the PNB in increasing the interest rate on the
private respondent's loan, violated the mutuality of contracts ordained in Article
1308 of the Civil Code:

"ART. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

In order that obligations arising from contracts may have the force of law between
the parties, there must be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void

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(Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8
million loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during
the term of the loan, that license would have been null and void for being violative
of the principle of mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co.,
95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the
courts of justice must protect against abuse and imposition.

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63. RICARDO C. HONRADO,  vs. GMA NETWORK FILMS, INC.

Gr No. 204702, J. Carpio

DOCTRINE:

Stipulations for payment of "commission" to the licensor is incongruous to the

nature of such contracts unless the licensor merely acted as agent of the film
owners. Nowhere in the Agreement, however, did the parties stipulate that
petitioner signed the contract in such capacity. On the contrary, the Agreement
repeatedly refers to petitioner as "licensor" and GMA Films as "licensee." Nor did the
parties stipulate that the fees paid by GMA Films for the films listed in the
Agreement will be turned over by petitioner to the film owners

FACTS:

GMA Films entered into a "TV Rights Agreement" with petitioner under which
petitioner, as licensor of 36 films, granted to GMA Films, for a fee of ₱60.75 million,
the exclusive right to telecast the 36 films for a period of three years. Under
Paragraph 3 of the Agreement, the parties agreed that "all betacam copies of the
[films] should pass through broadcast quality test conducted by GMA-7," the TV
station operated by GMA Network, Inc., an affiliate of GMA Films. The parties also
agreed to submit the films for review by the MTRCB and stipulated on the remedies
in the event that MTRCB bans the telecasting of any of the films (Paragraph 4):

The PROGRAMME TITLES listed above shall be subject to approval by the Movie and
Television Review and Classification Board (MTRCB) and, in the event of
disapproval, LICENSOR [Petitioner] will either replace the censored PROGRAMME
TITLES with another title which is mutually acceptable to both parties or, failure to
do such, a proportionate reduction from the total price shall either be deducted or
refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films].

Two of the films covered by the Agreement were Evangeline Katorse and Bubot for
which GMA Films paid ₱1.5 million each.

In 2003, GMA Films sued petitioner in the RTC to collect ₱1.6 million representing
the fee it paid for Evangeline Katorse (₱1.5 million) and a portion of the fee it paid
for Bubot (₱350,0004). GMA Films alleged that it rejected Evangeline Katorse
because "its running time was too short for telecast" 5 and petitioner only remitted
₱900,000 to the owner of Bubot (Juanita Alano) keeping for himself the balance of
₱350,000. GMA Films prayed for the return of such amount on the theory that an
implied trust arose between the parties as petitioner fraudulently kept it for himself.

Petitioner denied liability, counter-alleging that after GMA Films rejected Evangeline
Katorse, he replaced it with another film, Winasak na Pangarap, which GMA Films
accepted. As proof of such acceptance, petitioner invoked a certification of GMA
Network, attesting that such film "is of good broadcast quality". Regarding the fee

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GMA Films paid for Bubot, petitioner alleged that he had settled his obligation to
Alano. Alternatively, petitioner alleged that GMA Films, being a stranger to the
contracts he entered into with the owners of the films in question, has no personality
to question his compliance with the terms of such contracts.

RTC dismissed GMA Films’ complaint. The CA granted GMA Films’ appeal and
ordered respondent to pay GMA Films ₱2 million 8 as principal obligation with 12%
annual interest, among others. The CA found that (1) GMA Films was authorized
under Paragraph 4 of the Agreement to reject Evangeline Katorse, and (2) GMA
Films never accepted Winasak na Pangarap as replacement because it was a "bold"
film.

ISSUE:  

WON the petitioner is liable for breach of the Agreement and breach of trust.

HELD:

NO. Petitioner committed no breach of contract or trust.

Under the Par. 4 of the Agreement, what triggers the rejection and replacement of
any film listed in the Agreement is the "disapproval" of its telecasting by MTRCB.

Nor is there any dispute that GMA Films rejected Evangeline Katorse not because it
was disapproved by MTRCB but because the film’s total running time was too short
for telecast (undertime). Instead of rejecting GMA Films’ demand for falling outside
of the terms of Paragraph 4, petitioner voluntarily acceded to it and replaced such
film with Winasak na Pangarap. What is disputed is whether GMA Films accepted the
replacement film offered by petitioner.

In terms devoid of any ambiguity, Paragraph 4 of the Agreement requires the

intervention of MTRCB, the state censor, before GMA Films can reject a film and
require its replacement. GMA Films does not allege, and we find no proof on record
indicating, that MTRCB reviewed Winasak na Pangarap and X-rated it. Indeed, GMA
Films’ own witness, Jose Marie Abaca testified during trial that it was GMA Network
which rejected Winasak na Pangarap because the latter considered the film
"bomba."13 In doing so, GMA Network went beyond its assigned role under the
Agreement of screening films to test their broadcast quality and assumed the
function of MTRCB to evaluate the films for the propriety of their content. This runs
counter to the clear terms of Paragraphs 3 and 4 of the Agreement.

Being a stranger to such arrangements, GMA Films is no more entitled to complain

of any breach by petitioner of his contracts with the film owners than the film
owners are for any breach by GMA Films of its Agreement with petitioner.

We entertain no doubt that petitioner forged separate contractual arrangements with

the owners of the films listed in the Agreement, spelling out the terms of payment to

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the latter. Whether or not petitioner complied with these terms, however, is a matter
to which GMA Films holds absolutely no interest. Being a stranger to such
arrangements, GMA Films is no more entitled to complain of any breach by petitioner
of his contracts with the film owners than the film owners are for any breach by
GMA Films of its Agreement with petitioner. 

64.  Mamaril v. Boy Scouts of the Phils. 

G.R. NO. 179382 JANUARY 14, 2013. PERLAS-BERNABE. J.

DOCTRINE:

Art. 1311. Contracts take effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The heir is not
liable beyond the value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.

FACTS: 

Sps. Mamari are jeepney operators. They would park their  6 passenger jeepneys
every night at the Boy Scout of the Philippines (BSP) compound. On May 26, 1995
all these vehicles were parked inside the BSP compound. The following morning,
however, one of the vehicles was missing and was never recovered. According to the
security guards Peña and Gaddi of AIB Security Agency, Inc. (AIB) with whom BSP
had contracted for its security and protection, a male person who looked familiar to
them took the subject vehicle out of the compound.

Sps. Mamaril filed a complaint for damages before the RTC of Manila against BSP,
AIB, Peña and Gaddi. Peña and Gaddi even admitted their negligence during the
ensuing investigation. 

In its Answer, BSP denied any liability contending that not only did Sps. Mamaril
directly deal with AIB with respect to the manner by which the parked vehicles
would be handled, but the parking ticket itself expressly stated that the
"Management shall not be responsible for loss of vehicle or any of its accessories or
article left therein." It also claimed that Sps. Mamaril erroneously relied on the Guard
Service Contract. Apart from not being parties thereto, its provisions cover only the
protection of BSP's properties, its officers, and employees. 

RTC rendered a Decision in favor of Sps. Mamaril. 

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The CA affirmed the finding of negligence on the part of security guards Peña and
Gaddi. However, it absolved BSP from any liability, holding that the Guard Service
Contract is purely between BSP and AIB and that there was nothing therein that
would indicate any obligation and/or liability on the part of BSP in favor of third
persons, such as Sps. Mamaril. Nor was there evidence sufficient to establish that
BSP was negligent.

ISSUE:

Is BSP liable based on the Guard Service Contract?

HELD:

NO. Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the decedent.

If a contract should contain some stipulation in favor of a third person, he

may demand its fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.

In order that a third person benefited by the second paragraph of Article 1311,
referred to as a stipulation pour autrui, may demand its fulfillment, the following
requisites must concur: (1) There is a stipulation in favor of a third person; (2) The
stipulation is a part, not the whole, of the contract; (3) The contracting parties
clearly and deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and uncompensated; (5) The third
person communicated his or her acceptance of the favor before its revocation; and
(6) The contracting parties do not represent, or are not authorized, by the third
party. 

However, none of the foregoing elements obtains in this case. It is undisputed that
Sps. Mamaril are not parties to the Guard Service Contract. Neither did the subject
agreement contain any stipulation pour autrui. And even if there was, Sps. Mamaril
did not convey any acceptance thereof. Thus, under the principle of relativity of
contracts, they cannot validly claim any rights or favor under the said agreement. As
correctly found by the CA:

The Guard Service Contract is purely between BSP and AIB and that there was
nothing therein that would indicate any obligation and/or liability on the part of BSP
in favor of third persons, such as Sps. Mamaril. Nor was there evidence sufficient to
establish that BSP was negligent.

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BSP sought the services of defendant AIB Security Agency for the purpose of the
security and protection of its properties, as well as that of its officers and employees,
so much so that in case of loss of damage suffered by it as a result of any act or
negligence of the guards, the security agency would then be held responsible
therefor. There is absolutely nothing in the said contract that would indicate any
obligation and/or liability on the part of the parties therein in favor of third persons
such as herein plaintiffs-appellees.

65. DKC Holdings Corporation vs. Court of Appeals, Victor U. Bartolome

G.R. No. 118248, April 05, 2000. Justice Ynares-Santiago

6DOCTRINE:

1. In Contracts, the General Rule, therefore, is that heirs are bound by contracts
entered into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision by law
2. Intransmissible Rights by their nature as explained by Arturo Tolentino is as
follows “among contracts which are intransmissible are those which are purely
personal, either by provision of law, such as in cases of partnerships and
agency, or by the very nature of the obligations arising therefrom, such as those
requiring special personal qualification of the obligor. It may also be stated that
contracts for the payment of money debts are not transmitted to the heirs of a
party, but constitute a charge against his estate. 
3. There is privity of interest between an heir and his deceased predecessor, he
only succeeds to what rights his predecessor had and what is valid and binding
against the latter is also valid and binding as against the former 
4. The death of a party does not excuse nonperformance of a contract which
involves a property right, and the rights and obligations thereunder pass to the
personal representatives of the deceased. 
 
FACTS:

The subject controversy is a parcel of land which was originally owned by private
respondent deceased mother, Encarnacion Bartolome, under a TCT issued by the
Register of Deeds of Metro Manila. This lot was in front of one of the textile plants of
petitioner and as such, was seen by the latter as a potential warehouse site. 

On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy
with Encarnacion Bartolome, whereby petitioner was given the option to lease or
lease with purchase the subject land, which option must be exercised within a period
of two years counted from the signing of the contract. In turn, petitioner undertook
to pay P3,000.00 a month as consideration for the reservation of its option. Within
the 2 year period, petitioner shall serve formal written notice upon the lessor
(Encarnacion) of its desire to exercise its option. The contract also provided that in

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case the petitioner chose to lease the property, it may take actual possession of the
premises. In such an event, the lease shall be for a period for a period of 6 years,
renewable for another 6 years, and the monthly rental fee shall be P15,000 for the
first 6 yrs and P18,000 for the next 6 yrs in case of renewal. Petitioner regularly paid
the monthly P3,000 provided for by the Contract until Encarnacion’s death in
January 1990. Thereafter, petitioner coursed its payment to private respondent
Victor, being the sole heir of Encarnacion. However, he refused to accept these
payments. 

On January 10, 1990, Victor executed an affidavit of self-adjudication over all the
properties of Encarnacion, including the subject lot. As an effect, the the subject lot
was transferred to Victor, On March 14, 1990, petitioner served upon Victor, a notice
that it was exercising its option to lease the property, tendering the amount of
P15,000 as rent for the month of March but it was not accepted by Victor and the
latter refused to surrender possession of the property. Petitioner thus opened an
account in the name of Victor and deposited therein the rental and reservation fees. 

As such, the petitioner filed a complaint for specific performance with damages
against Victor with the RTC. Meanwhile a motion for intervention was filed by one
Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject
property, which was an agricultural riceland, for 45 years. On July 16, 1990, the
lower court denied the motion to intervene and dismissed the complaint by the
petitioner which was affirmed by the CA held that the said contract was terminated
upon the death of Encarnacion and did not bind Victor because he was not a party
thereto.

ISSUES:

Whether or not the Contract of Lease with Option to Buy entered into by the late
Encarnacioin with petitioner was terminated upon her death or whether it binds her
sole heir, Victor, even after her demise?

RULING:

The Supreme Court reversed the decision of the CA and Ruled against Victor and
ordered the latter to deliver the parcel of land by way of lease to the petitioner.

The Supreme Court in arriving at the Ruling held that in the case at bar, there is
neither contractual stipulation nor legal provision making the rights and obligation
under the contract intransmissible. More importantly, the nature of the rights and
obligations therein are, by their nature, transmissible.
It has also been held that a good measure for determining whether a contract
terminated upon the death of one of the parties is whether it is of such a character
that it may be performed by the promissor’s personal representative. Contracts to
perform personal acts which cannot be as well performed by others are discharged
by the death of the promissor. Conversely, where the service or act is of such a
character that it may as well be performed by another, or where the contract, by its

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terms, shows that performance by others was contemplated, death does not
terminate the contract or excuse nonperformance.  

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66. Tanay Recreation Center and Development Corp. vs. Fausto 

G.R. No. 140182. April 12, 2005.  AUSTRIA-MARTINEZ, J.: 

DOCTRINES:

Contracts; Lease; Right of First Refusal; When a lease contract contains a

right of first refusal, the lessor is under a legal duty to the lessee not to
sell to anybody at any price until after he has made an offer to sell to the
latter at a certain price and the lessee has failed to accept it.—When a lease
contract contains a right of first refusal, the lessor is under a legal duty to the lessee
not to sell to anybody at any price until after he has made an offer to sell to the
latter at a certain price and the lessee has failed to accept it. The lessee has a right
that the lessor’s first offer shall be in his favor. Petitioner’s right of first refusal is an
integral and indivisible part of the contract of lease and is inseparable from the
whole contract. The consideration for the lease includes the consideration for the
right of first refusal and is built into the reciprocal obligations of the parties. 

A right of first refusal means identity of terms and conditions to be offered

to the lessee and all other prospective buyers and a contract of sale
entered into in violation of a right of first refusal of another person, while
valid, is rescissible.— The prevailing doctrine therefore, is that a right of first
refusal means identity of terms and conditions to be offered to the lessee and all
other prospective buyers and a contract of sale entered into in violation of a right of
first refusal of another person, while valid, is rescissible. 

The basis of the right of the first refusal must be the current offer to sell
of the seller or offer to purchase of any prospective buyer.—In Parañaque
Kings Enterprises, Inc. vs. Court of Appeals, it was ruled that the basis of the right
of the first refusal must be the current offer to sell of the seller or offer to purchase
of any prospective buyer. It is only after the grantee fails to exercise its right of first
priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as
offered to the grantee. 

Same; Same; The general rule is that heirs are bound by contracts entered
into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation, or (3) provision of law.—A lease contract is not essentially personal
in character. Thus, the rights and obligations therein are transmissible to the heirs.
The general rule is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation, or (3) provision of law. 

Essential Elements of Estoppel.—The essential elements of estoppel are: (1)

conduct of a party amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the facts are otherwise

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than, and inconsistent with, those which the party subsequently attempts to assert;
(2) intent, or at least expectation, that this conduct shall be acted upon by, or at
least influence, the other party; and (3) knowledge, actual or constructive, of the
real facts. 

Estoppel must be intentional and unequivocal.— Petitioner cannot be faulted

for merely seeking a renewal of the lease contract because obviously, it was working
on the assumption that title to the property is still in Fausto’s name and the latter
has the sole authority to decide on the fate of the property. Instead, it was
respondent who replied, advising petitioner to remove all the improvements on the
property, as the lease is to expire on the 1st of August 1991. Respondent also
informed petitioner that her mother has already sold the property to her. In order to
resolve the matter, a meeting was called among petitioner’s stockholders, including
respondent, on July 27, 1991, where petitioner, again, proposed that the lease be
renewed. Respondent, however, declined. While petitioner may have sought the
renewal of the lease, it cannot be construed as a relinquishment of its right of first
refusal. Estoppel must be intentional and unequivocal. 

FACTS:

Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-
square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina
Matienzo Fausto (Fausto), under a Contract of Lease executed on August 1, 1971.
On this property stands the Tanay Coliseum Cockpit operated by petitioner. The
lease contract provided for a 20-year term, subject to renewal within sixty days prior
to its expiration. The contract also provided that should Fausto decide to sell the
property, petitioner shall have the "priority right" to purchase the same.  

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the
lease. However, it was Fausto's daughter, respondent Anunciacion F. Pacunayen,
who replied, asking that TRDC remove the improvements built thereon, as she is
now the absolute owner of the property. It appears that Fausto had earlier sold the
property to Pacunayen on August 8, 1990, for the sum of P10,000.00 under
a "Kasulatan ng Bilihan Patuluyan ng Lupa," and title has already been transferred in
her name. 

Despite efforts, the matter was not resolved. Hence, on September 4, 1991, TRCDC
filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance
with Damages, and Injunction.

In her Answer, respondent claimed that petitioner is estopped from assailing the
validity of the deed of sale as the latter acknowledged her ownership when it merely
asked for a renewal of the lease. According to respondent, when they met to discuss
the matter, petitioner did not demand for the exercise of its option to purchase the
property, and it even asked for grace period to vacate the premises 

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RTC rendered judgment extending the period of the lease for another seven years
from August 1, 1991 at a monthly rental of P10,000.00.

The CA affirmed with modifications the trial court's judgment and ordered TRCDC to
vacate the leased premises immediately; make the necessary accounting regarding
the amounts it had already deposited and in case it had not yet completed its
deposit, to immediately pay the remaining balance to Pacunayen; and to pay the
amount of P10,000 monthly rental, with regard to its continued stay in the leased
premises even after the expiration of the extended 7 years from August 1, 1998,
until it finally vacates therefrom.

The CA acknowledged the priority right of TRCDC to purchase the property in

question. However, the CA interpreted such right to mean that it shall be applicable
only in case the property is sold to strangers and not to Fausto's relative. The CA
also ruled that petitioner already acknowledged the transfer of ownership and is
deemed to have waived its right to purchase the property. The CA even further went
on to rule that even if the sale is annulled, petitioner could not achieve anything
because the property will be eventually transferred to Pacunayen after Fausto's
death. 

ISSUE:
1. Whether or not priority right to purchase the leased premises shall only apply if
the lessor decides to sell the same to strangers. 
2. Whether or not sale made in violation of a right of first refusal is valid.
3. Whether or not it would be useless to annul the sale between Fausto and
TRCDC because the property would still remain with Pacunayen after the death
of her mother by virtue of succession.

HELD:
1. No. Petitioner's right of first refusal in this case is expressly provided for in the
notarized "Contract of Lease" dated August 1, 1971, between Fausto and
TRCDC. When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price until after
he has made an offer to sell to the latter at a certain price and the lessee has
failed to accept it. The lessee has a right that the lessor's first offer shall be in
his favor. TRCDC’s right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The consideration
for the lease includes the consideration for the right of first refusal and is built
into the reciprocal obligations of the parties.

It was erroneous for the CA to rule that the right of first refusal does not apply
when the property is sold to Fausto's relative.  When the terms of an
agreement have been reduced to writing, it is considered as containing all the
terms agreed upon. As such, there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of
the written agreement, except when it fails to express the true intent and
agreement of the parties.  In this case, the wording of the stipulation giving

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petitioner the right of first refusal is plain and unambiguous, and leaves no
room for interpretation. It simply means that should Fausto decide to sell the
leased property during the term of the lease, such sale should first be offered
to TRCDC. The stipulation does not provide for the qualification that such right
may be exercised only when the sale is made to strangers or persons other
than Fausto's kin. Thus, under the terms of TRCDC's right of first refusal,
Fausto has the legal duty to not to sell the property to anybody, even her
relatives, at any price until after she has made an offer to sell to TRCDC at a
certain price and said offer was rejected by TRCDC. Pursuant to their contract,
it was essential that Fausto should have first offered the property to TRCDC
before she sold it to Pacunayen. It was only after TRCDC failed to exercise its
right of first priority could Fausto then lawfully sell the property to Pacunayen.

2. The rule is that a sale made in violation of a right of first refusal is valid.
However, it may be rescinded, or, as in this  case, may be the subject of an
action for specific performance. A right of first refusal means identity of terms
and conditions to be offered to the lessee and all other prospective buyers and
a contract of sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.

3. No. It was incorrect for the CA to rule that it would be useless to annul the sale
between Fausto and respondent because the property would still remain with
respondent after the death of her mother by virtue of succession, as in fact,
Fausto died in March 1996, and the property now belongs to respondent, being
Fausto's heir. 

For one, Fausto was bound by the terms and conditions of the lease contract.
Under the right of first refusal clause, she was obligated to offer the property
first to petitioner before selling it to anybody else. When she sold the property
to respondent without offering it to petitioner, the sale while valid is rescissible
so that petitioner may exercise its option under the contract.

With the death of Fausto, whatever rights and obligations she had over the
property, including her obligation under the lease contract, were transmitted to
her heirs by way of succession, a mode of acquiring the property, rights and
obligation of the decedent to the extent of the value of the inheritance of the
heirs. Article 1311 of the Civil Code provides:

ART. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract
are not transmissible by their nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the property he received from the
decedent.

A lease contract is not essentially personal in character. Thus, the rights and

obligations therein are transmissible to the heirs. The general rule is that heirs
are bound by contracts entered into by their predecessors-in-interest except

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when the rights and obligations arising therefrom are not transmissible by (1)
their nature, (2) stipulation or (3) provision of law. 

In this case, the nature of the rights and obligations are, by their nature,
transmissible. There is also neither contractual stipulation nor provision of law
that makes the rights and obligations under the lease contract intransmissible.
The lease contract between TRCDC and Fausto is a property right, which is a
right that passed on to Pacunayen and the other heirs, if any, upon the death
of Fausto.

67. C. S. GILCHRIST, plaintiff-appellee, vs. E. A. CUDDY, ET AL.,

defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.
G.R. No. L-9356, EN BANC, February 18, 1915, TRENT, J.:

DOCTRINE:

The liability of the appellants arises from unlawful acts and not from contractual
obligations, as they were under no such obligations to induce Cuddy to violate his
contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it
would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of
that code provides that a person who, by act or omission, causes damages to
another when there is fault or negligence, shall be obliged to repair the damage
done. There is nothing in this article which requires as a condition precedent to the
liability of a tort-feasor that he must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this article is found clearly shows that
no such knowledge is required in order that the injured party may recover for the
damage suffered.

FACTS:

Cuddy, a resident of Manila, was the owner of the "Zigomar;" that Gilchrist was the
owner of a cinematograph theater in Iloilo; that in accordance with the terms of the
contract entered into between Cuddy and Gilchrist the former leased to the latter the
"Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26,
1913; and that Cuddy willfully violate his contract in order that he might accept the
appellant's offer of P350 for the film for the same period.

Did the appellants know that they were inducing Cuddy to violate his contract with a
third party when they induced him to accept the P350? Espejo admitted that he
knew that Cuddy was the owner of the film. He received a letter from his agents in
Manila dated April 26, assuring him that he could not get the film for about six
weeks. The arrangement between Cuddy and the appellants for the exhibition of the
film by the latter on the 26th of May were perfected after April 26, so that the six
weeks would include and extend beyond May 26. The appellants must necessarily

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have known at the time they made their offer to Cuddy that the latter had booked or
contracted the film for six weeks from April 26. Therefore, the inevitable conclusion
is that the appellants knowingly induced Cuddy to violate his contract with another
person. But there is no specific finding that the appellants knew the identity of the
other party. So we must assume that they did not know that Gilchrist was the
person who had contracted for the film.

ISSUE:

Whether or not Espejo and his partner Zaldarriaga should be liable for damages
though they do not know the identity of Gilchrist. (YES)

RULING:

It is said that the ground on which the liability of a third party for interfering with a
contract between others rests, is that the interference was malicious. The contrary
view, however, is taken by the Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive for interference by the third
party in that case was the desire to make a profit to the injury of one of the parties
of the contract. There was no malice in the case beyond the desire to make an
unlawful gain to the detriment of one of the contracting parties.

In the case at bar the only motive for the interference with the Gilchrist — Cuddy
contract on the part of the appellants was a desire to make a profit by exhibiting the
film in their theater. There was no malice beyond this desire; but this fact does not
relieve them of the legal liability for interfering with that contract and causing its
breach. It is, therefore, clear, under the above authorities, that they were liable to
Gilchrist for the damages caused by their acts, unless they are relieved from such
liability by reason of the fact that they did not know at the time the identity of the
original lessee (Gilchrist) of the film.

The liability of the appellants arises from unlawful acts and not from contractual
obligations, as they were under no such obligations to induce Cuddy to violate his
contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it
would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of
that code provides that a person who, by act or omission, causes damages to
another when there is fault or negligence, shall be obliged to repair the damage
done.

There is nothing in this article which requires as a condition precedent to the liability
of a tort-feasor that he must know the identity of a person to whom he causes
damages. In fact, the chapter wherein this article is found clearly shows that no
such knowledge is required in order that the injured party may recover for the
damage suffered.

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68. MCIAA vs Gavina

GR No. 173140

69. RIDO MONTECILLO, Petitioner, vs. IGNACIA REYNES and SPOUSES

REDEMPTOR and ELISA ABUCAY, Respondents.
G.R. No. 138018, THIRD DIVISION, July 26, 2002. CARPIO, J.

DOCTRINE: 

Where the deed of sale states that the purchase price has been paid but in fact has
never been paid, the deed of sale is null and void ab initio for lack of consideration.
A contract of sale is void and produces no effect whatsoever where the price, which
appears thereon as paid, has in fact never been paid by the purchaser to the
vendor. Such a sale is non-existent or cannot be considered consummated.

FACTS:

Respondents Ignacia Reynes (Reynes for brevity) and Spouses Abucay (Abucay
Spouses for brevity) filed on June 20, 1984 a complaint for Declaration of Nullity and
Quieting of Title against petitioner Rido Montecillo (Montecillo for brevity). Reynes
asserted that she is the owner of a lot situated in Mabolo, Cebu City, covered by
Transfer Certificate of Title No. 74196 and containing an area of 448 square meters
(Mabolo Lot for brevity). In 1981, Reynes sold 185 square meters of the Mabolo Lot
to the Abucay Spouses who built a residential house on the lot they bought.

Reynes further alleged that Montecillo failed to pay the purchase price after the
lapse of the one- month period, prompting Reynes to demand from Montecillo the
return of the Deed of Sale. Since Montecillo refused to return the Deed of Sale,
Reynes executed a document unilaterally revoking the sale and gave a copy of the
document to Montecillo.

Reynes and the Abucay Spouses argued that for lack of consideration there (was) no
meeting of the minds between Reynes and Montecillo. Thus, the trial court should
declare null and void ab initio Montecillos Deed of Sale and order the cancellation of
Certificate of Title No. 90805 in the name of Montecillo.

ISSUE:

Whether or not the deed of sale is void ab initio. (YES)

RULING:

Under Article 1318 of the Civil Code, [T]here is no contract unless the following
requisites concur: (1) Consent of the contracting parties; (2) Object certain which is

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the subject matter of the contract; (3) Cause of the obligation which is established.
Article 1352 of the Civil Code also provides that Contracts without cause produce no
effect whatsoever.

On its face, Montecillos Deed of Absolute Sale appears supported by a valuable

consideration. However, based on the evidence presented by both Reynes and
Montecillo, the trial court found that Montecillo never paid to Reynes, and Reynes
never received from Montecillo, the P47,000.00 purchase price. There was
indisputably a total absence of consideration contrary to what is stated in Montecillos
Deed of Sale. As pointed out by the trial court.

Where the deed of sale states that the purchase price has been paid but in fact has
never been paid, the deed of sale is null and void ab initio for lack of consideration.
A contract of sale is void and produces no effect whatsoever where the price, which
appears thereon as paid, has in fact never been paid by the purchaser to the
vendor. Such a sale is non-existent) or cannot be considered consummated.

70. Laudico vs Arias

71. VILLANUEVA v CA
GR No. 132955, October 27, 2006. YNARES-SANTIAGO, J.

DOCTRINE:

Lack of cohabitation is, per se, not a ground to annul a marriage. Otherwise, the
validity of a marriage will depend upon the will of the spouses who can terminate
the marital union by refusing to cohabitate. The failure to cohabit becomes relevant
only if it arises as a result of the perpetration of any of the grounds for annulling the
marriage, such as lack of parental consent, insanity, fraud, intimidation, or undue
influence 

FACTS:

Orlando Villanueva and Lilia Canalita-Villanueva married on April 13, 1988 in

Palawan. On November 17, 1992, Villanueva filed a petition for annulment of his
marriage on the ground of threats of violence and duress forcing him to marry Lilia
who was already pregnant at the time. He alleged that he did not get her pregnant
and that he never cohabited with her after the marriage. The child had died during
delivery. In her answer, Lilia prayed for the dismissal of the petition, arguing that
Villanueva freely and voluntarily married her; that petitioner stayed with her in
Palawan for almost a month after their marriage; and that petitioner wrote letters to
her after returning to Manila.

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The RTC dismissed Fernando’s complaint, ordering him to pay Lilia moral and
exemplary damages. Fernando appealed to the CA which affirmed the RTC’s ruling
but reduced the award of moral and exemplary damages. 

ISSUE: 

W/N their marriage can be dissolved on the ground of vitiated consent?

HELD:

NO. Fernando claims that he did not freely consent to the marriage because was
harassed and forced to marry her: harassing phone calls, unwelcome visits from
three men after his classes at UE, and threatening presence of a certain Ka Celso
who is allegedly a member of the NPA.

The SC is not convinced that Fernando’s apprehension of danger to his person is so

overwhelming that it had deprived him of the will to enter voluntarily to a contract of
marriage. He worked as a security guard in a bank and as such, he should at least
know basic self-defense. Also, he did not inform the judge about his predicament
prior to solemnizing their marriage.

He also alleged fraud because he was made to believe that Lilia was pregnant with
his child when they were married. His excuse is that he could not have impregnated
her because he was not physically prepared during their tryst, but this was negated
by the narration of Fernando’s counsel before the RTC—that the sexual act had been
consummated in 1988 before the marriage.

Instead of presenting his own strong evidence, Fernando resorted to undermining

the credibility of Lilia by citing her errors in recalling the date of birth of their child—
that she was off by a year.

He also wrote 13 letters of love to Lilia of which he acknowledged 7, but later

retracted and denied having voluntarily written them. If he was really under duress,
how could he have denied his involvement in the other 6 letters?

He cannot claim to annul his marriage because he and Lilia no longer cohabited after
the marriage. Lack of cohabitation is, per se, not a ground to annul a marriage.
Failure to cohabit becomes relevant only if it arises as a result of the perpetration of
any of the grounds for annulling the marriage. He failed to justify his failure to
cohabit with Lilia, thus the validity of his marriage should be upheld.

72. ADELFA PROPERTIES, INC. VS. COURT OF APPEALS

G.R. No. 111238. January 25, 1995. REGALADO, J.

DOCTRINES:

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The important task in contract interpretation is always the ascertainment of the

intention of the contracting parties. 

The test in determining whether a contract is a “contract of sale or purchase” or a

mere “option” is whether or not the agreement could be specifically enforced.

FACTS:

Private respondents and their brothers, Jose and Dominador, were the registered
CO-OWNERS of a parcel of land situated in Las Pinas, covered by a TCT. Jose and
Dominador sold their shares (eastern portion of the land) to herein Petitioner.
Thereafter, petitioner also expressed its interest in buying the western portion of the
same property from herein private respondents. They executed an “Exclusive Option
to Purchase” with option money worth P 50,000 treated as partial payment of the
purchase price. 

Before the petitioner could make payments, it received summons as a case was filed
(RTC Makati) against it, Jose and Dominador, because of a complaint filed by the
private respondents’ nephews and nieces. As a consequence, Petitioner, through a
letter, informed private respondents that it would hold payment of the full purchase
price suggesting that they should first settle the civil case against their nephews and
nieces. Salud did not heed and attributed the suspension of payment to a “lack of
word of honor” prompting herein private respondents to inform petitioner’s counsel,
Atty. Bernardo, that they are cancelling the transaction. Atty Bernardo made
counter-offers but were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed
a Deed of Conditional Sale in favor of Chua over the same parcel of land. Atty
Bernardo wrote private respondents informing them that in view of the dismissal of
the case, the petitioner is still willing to pay the purchase price, and requested that
the corresponding deed of Absolute Sale be executed. The same was ignored by
herein private respondents.

Private respondents then sent a letter with an enclosed check to petitioner

representing the refund of half the option money it paid under the “Exclusive Option
to Purchase”, and requested petitioner to return the owner’s duplicate copy of Salud.
Petitioner failed to surrender the certificate of title, so, private respondents filed a
civil case before the RTC Pasay for annulment of contract with damages. The trial
court directed the cancellation of the same, and on appeal, the same was affirmed
in toto by public respondent.

ISSUES: 

1. Was the “Exclusive Option to Purchase” executed between petitioner and

private respondents an option contract?;

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2. Was there was a valid suspension of payment of the purchase price by said
Petitioner, and if so, the legal effects thereof on the contractual relations of
the parties?

RULING: 

1. NO. The agreement between the parties is a contract to sell, and not an
option contract or a contract of sale.

Option
● a continuing offer or contract by which the owner stipulates with another
that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and
conditions, or which gives to the owner of the property the right to sell or
demand a sale
● also called as an unaccepted offer
● not of itself a purchase, but merely secures the privilege to buy; not a
sale of property, but a sale of right to purchase
● simply a contract by which the owner of property agree with other
person that he shall have the right to buy his property at a fixed price
within a certain time
● imposes no binding obligation on the person holding the option aside
from the consideration for the offer

Contract
● involves a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service
● perfected generally, by mere consent – manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract; the offer must be certain and the acceptance
absolute
● fixes definitely the relative rights and obligations of both parties at the
time of its execution

In the case at bar, there is indeed a concurrence of petitioner’s offer to buy

and private respondents’ acceptance thereof. The so called “Exclusive Option
to Purchase” was prepared by petitioner and was subsequently signed by
private respondents, thereby creating a perfected contract to sell between
them. 

Contract to sell
● by agreement the ownership is reserved in the vendor and is not to pass
until the full payment of the price
● title is retained by the vendor until the full payment of the price, such
payment being a positive

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Contract of sale
● the title passes to the vendee upon the delivery of the thing sold
● the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded

There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon the full payment of the purchase
price: (1) the exclusive option to purchase, although it provided for automatic
rescission of the contract and partial forfeiture of the amount already paid in
case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment.
There is no stipulation anent reversion or reconveyance of the property to
herein private respondents in the event that petitioner does not comply with
its obligation. With the absence of such a stipulation, although there is a
provision on the remedies available to the parties in case of breach, it may
legally be inferred that the parties never intended to transfer ownership to the
petitioner to completion of payment of the purchase price; and (2) it has not
been shown there was delivery of the property, actual or constructive, made
to herein petitioner. The exclusive option to purchase is not contained in a
public instrument the execution of which would have been considered
equivalent to delivery.  Neither did petitioner take actual, physical possession
of the property at any given time. It is true that after the reconstitution of
private respondents’ certificate of title, it remained in the possession of
petitioner’s counsel, Atty. Bayani L. Bernardo, who thereafter delivered the
same to herein petitioner. Normally, under the law, such possession by the
vendee is to be understood as a delivery. However, private respondents
explained that there was really no intention on their part to deliver the title to
herein petitioner with the purpose of transferring ownership to it. They claim
that Atty. Bernardo had possession of the title only because he was their
counsel in the petition for reconstitution.

In effect, there was an implied agreement that ownership shall not pass to
the purchaser until he had fully paid the price in this case. Article 1478 of the
civil code does not require that such a stipulation be expressly made.
Consequently, an implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It should be noted
that under the law and jurisprudence, a contract which contains this kind of
stipulation is considered a contract to sell.

The alleged option money was actually earnest money which was intended to
form part of the purchase price. The amount was not distinct from the cause
or consideration for the sale of the property, but was itself a part thereof. It is
a statutory rule that whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection of the
contract. It constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by the buyer to
the seller to bind the bargain.

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There are clear distinctions between earnest money and option money, viz.:
● earnest money is part of the purchase price, while option money ids the
money given as a distinct consideration for an option contract;
● earnest money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and
● when earnest money is given, the buyer is bound to pay the balance,
while when the would-be buyer gives option money, he is not required to
buy.

The aforequoted characteristics of earnest money are apparent in the so-

called option contract under review, even though it was called “option money”
by the parties. In addition, private respondents failed to show that the
payment of the balance of the purchase price was only a condition precedent
to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an
element of the performance of petitioner’s obligation under the contract to
sell.

2. YES. Petitioner’s suspension of payments was valid. Under Art. 1590, the
buyer may suspend payment of the price should he be disturbed in the
possession or ownership of the thing acquired, until the vendor cause the
disturbance to cease. In this case, the filing of the civil case constitutes such
disturbance under the said law, and the seller’s assurance that the case the
merely a harassment does not qualify as “causing the disturbance to cease”
within the meaning of said law.

The sellers can no longer be compelled to sell or deliver the property. This
because petitioner failed to consign the balance of the purchase price when
the disturbance ceased, i.e. when the civil case was dismissed. In this case,
consignment was necessary given the nature of the subject contract as a
contract to sell. In other words, it creates an obligation on the part of
petitioner to pay the price. In contrast, such failure to consign will not affect
Petitioner’s right to purchase the property is the contract was properly an
option contract, which is not the case. In the latter, the mere tender of
payment to the seller, without corresponding consignation, is sufficient for the
buyer to preserve its option, given that the same merely creates a right and
does not impose an obligation upon the buyer.

The contract to sell was validly rescinded by the sellers. In this case, the SC
held that the written notice of rescission sent by the sellers to petitioner was
sufficient. The SC held that the resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in court. The Court said
that Petitioner’s receipt of the said notice without objection amounts to an
admission of the veracity and validity of the seller’s claim.

CA’s Judgment was affirmed. 

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73. FEDERICO SERRA, Petitioner, -versus - THE HON. COURT OF APPEALS

AND RIZAL COMMERCIAL BANKING CORPORATION, Respondents.
G.R. No. 103338, SECOND DIVISION, January 4, 1994, NOCON, J.

DOCTRINE:

Article 1479 of the New Civil Code states “A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable. An accepted unilateral promise
to buy or sell a determinate thing for a price certain is binding upon the promisor if
the promise is supported by a consideration distinct from the price.”

A price is certain if it is so with reference to another thing certain, or when the

determination thereof is left to the judgment of a specified person or persons.

In this case, the petitioner and respondent bank entered into a contract of lease with
option to buy. After acting on his obligations in the contract, the respondent bank
then informed the latter of its want to exercise its option. However, petitioner replied
that he was no longer selling the property. He insists that the option was not
supported by any condition distinct from the price, hence, not binding upon him.

FACTS:

Petitioner is the owner of a 374 square meter parcel of land in Masbate. In 1975,
respondent bank negotiated with petitioner for the purchase of the then
unregistered property. On 20 May 1975, a contract of LEASE WITH OPTION TO BUY
was instead forged by the parties, which stated: “(a) the lessor leases unto the
lessee, and the lessee accepts in lease, the parcel of land to have and to hold the
same for a period of 25 years from 1 June 1971 to 1 June 2000. The lessee shall
have the option to purchase said parcel of land within 10 years from the date of
signing this contract at a price not higher than P210.00 per square meter. The lessor
undertakes to register said parcel of land under the Torrens System and all expenses
appurtenant thereto shall be for his sole account. xxx” Within 3 years, petitioner
complied with his part of the agreement by registering the property and placing it
under the Torrens System. Petitioner argues that as soon as he had the property
registered, he kept on pursuing the manager of the branch to effect the sale of the
agreement. However, on 4 September 1984, respondent bank decided to exercise its
option (to buy the property at agreed price of nor more than P210.00 per square
meter or total of P78,430.00) and thus informed the petitioner via letter. Petitioner
declined and reasoned that he is no longer selling the property. Respondent bank
filed a complaint for specific performance and damages against petitioner. Petitioner
contended, among others, that (a) the option was not supported by any
consideration distinct from the price and hence not binding upon him; (b) the option
was predicated on the condition that it be done or exercised within a reasonable
time after the registration of the land under the Torrens System; and (c) that there
was no price certain. The trial court and Court of Appeals found that contract was

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valid, that the option is supported by a distinct and separate consideration, and that
there is on basis in granting an adjustment in rental. Respondent further argues that
the “price not greater than 200 pesos” is not a price certain, and that there was no
consideration to support the option, hence the option cannot be exercised. 

ISSUE:

Whether or not the “price not greater than 200 pesos” is a price certain. (YES)

RULING:

The price “not greater than 200 pesos” is certain or definite. A price is certain if it is
so with reference to another thing certain, or when the determination thereof is left
to the judgment of a specified person or persons. Moreover, contracts are always to
be construed in accordance to their sense, and meaning of terms, which the parties
have used. One of the stipulation in their contract states that “the lessee shall have
the option to purchase said parcel of land within 10 years from the date of signing
this contract at a price not higher than P210.00 per square meter.” In this case,
there is clear evidence that the intention of the parties was to peg the price at 210
pesos per square meter. The petitioner had the land titled under the Torrens System
and pursued the bank manager to effect the sale immediately. Evidently, he
perfectly understood the terms of the contract, and acted upon the conditions
therein. Thus, the price being certain, the contract of lease with option to buy
between the petitioner and respondent bank was valid, because there was a price
certain and that the consideration was distinct from the price to support the option
given to the lessee.

74. SALVADOR P. MALBAROSA, Petitioner, -versus - HON. COURT OF

APPEALS AND S.E.A. DEVELOPMENT CORP., Respondents.
G.R. No. 125761, SECOND DIVISION, April 30, 2003, CALLEJO, SR, J.

DOCTRINE:

Under Article 1319 of the New Civil Code, the consent by a party is manifested
by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. An offer may be reached at any time until it is
accepted. An offer that is not accepted does not give rise to a consent. The contract
does not come into existence. To produce a contract, there must be acceptance of
the offer which may be express or implied but must not qualify the terms of the
offer. The acceptance must be absolute, unconditional and without variance of any
sort from the offer.

The consent by a party is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract; An offer that is
not accepted does not give rise to a consent.

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In this case, petitioner was offered by respondent, thus needing petitioner’s

acceptance. However, before relaying petitioner’s conformity, respondent had
already withdrawn its offer. Thus, raising the issue concerning the effectivity of
petitioner’s conformity and if there was any perfected contract at all.

FACTS:

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the
group of companies wholly-owned and controlled by respondent S.E.A. Development
Corporation (SEADC). The petitioner Salvador P. Malbarosa was the president and
general manager of Philtectic Corporation, and an officer of other corporations
belonging to the SEADC group of companies. The respondent assigned to the
petitioner one of its vehicles, 1982 model Mitsubishi Gallant Super Saloon, with
plate number PCA 180 for his use.

Louis Da Costa was the president of therespondent and Commonwealth Insurance

Co., Inc., whileSenen Valero was the Vice-Chairman of the Board ofDirectors of the
respondent and Vice-Chairman of theBoard of Directors of Philtectic Corporation.

In January 1990, petitioner intimated to Vice-Chariman Senen Valero his desire to

retire from the SEADC group of companies. Petitioner sent a letter to Senend
tendering his resignation and added his request for the payment of his incentive
compensation as president of PhiltecticCorporation be paid to him for 1989. The
respondent made its offer through its Vice-Chairman of the Board of Directors,
Senen Valero.

On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-
offer of the respondent to the petitioner. The respondent required the petitioner to
accept the offer by affixing his signature on the space provided in said letter-offer
and writing the date of said acceptance, thus foreclosing an implied acceptance or
any other mode of acceptance by the petitioner. However, when the letter-offer of
the respondent was delivered to the petitioner on March 16, 1990, he did not accept
or reject the same for the reason that he needed time to decide whether to reject or
accept the same.
The petitioner received the original copy of the letter on the same day

On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner
withdrawing the March 14,1990 Letter-offer of the respondent and demanding that
the petitioner returnthe car and his membership certificate in the
ArchitecturalCenter, Inc. within 24 hours from his receipt thereof.

It was only on April 7, 1990 when the petitioner appended to his letter to the
respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity
that he notified the respondent of his acceptance to said offer. But then, the
respondent, through Philtectic Corporation, had already withdrawn its offer and had

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already notified the petitioner of said withdrawal via respondent's letter dated April
4, 1990, which was delivered to the petitioner on the same day.

With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff,
filed a complaint against thepetitioner, as defendant, for recovery of personal
property with replevin with damages and attorney’s fees

RTC ruled that there existed no perfected contract between the petitioner and the
respondent on the latter’s March 14, 1990 Letter-offer for failure of the petitioner to
effectively notify the respondent of his acceptance of said letter-offer before the
respondent withdrew the same.

The Court of Appeals affirmed the ruling of the RTC.

ISSUE:
Whether or not there was a valid acceptance on the petitioner. (NO)

RULING:

Under Article 1319 of the New Civil Code, the consent by a party is manifested
by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. An offer may be reached at any time
until it is accepted. An offer that is not accepted does not give rise to a
consent. The contract does not come into existence.

To produce a contract, there must be acceptance of the offer which may be express
or implied25 but must not qualify the terms of the offer. The acceptance must be
absolute, unconditional and without variance of any sort from the offer.

The acceptance of an offer must be made known to theofferor. Unless the offeror
knows of the acceptance, there is no meeting of the minds of the parties, no real
concurrence of offer and acceptance. The offeror may withdraw its offer and revoke
the same before acceptance thereof by the offeree. The contract is perfected only
from the time an acceptance of an offer is made known to the offeror.

In this case, the respondent made its offer through its ViceChairman of the Board of
Directors, Senen Valero. OnMarch 16, 1990, Da Costa handed over the original of
the March 14, 1990 Letter-offer of the respondent to the petitioner. The respondent
required the petitioner to accept the offer by affixing his signature on the space
provided in said letter-offer and writing the date of said acceptance, thus foreclosing
an implied acceptance or any other mode of acceptance by the petitioner. However,
when the letter-offer of the respondent was delivered to the petitioner on March 16,
1990, he didnot accept or reject the same for the reason that he needed time to
decide whether to reject or accept the same.33 There was no contract perfected
between the petitioner and the respondent corporation.

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Although the petitioner claims that he had affixed his conformity to the letter-offer
on March 28, 1990, the petitioner failed to transmit the said copy to the respondent.
It was only on April 7, 1990 when the petitioner appended to his letter to the
respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity
that he notified the respondent of his acceptance to said offer. But then, the
respondent, through Philtectic Corporation, had already withdrawn its offer and had
already notified the petitioner of said withdrawal via respondent’s letter dated April
4, 1990 which was delivered to the petitioner on the same day. Indubitably, there
was no contract perfected by the parties on the March 14, 1990Letter-offer of the
respondent.

Notably, acceptance of an offer must be made known to the offeror. The contract is
perfected only from the time an acceptance of an offer is made known to the
offeror. Thus, there is no contract perfected between the petitioner and the
respondent corporation. Petitioner failed to transmit the said copy of conformity to
the respondent.

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