OBLIGATIONS AND CONTRACTS S.Y.

2012-2013
3rd EXAM COVERAGE: Article 1306 to 1379

ARTICLE 1306: AUTONOMY OF CONTRACTS............2

TAYAG vs. LACSON (G.R. No. 134971. March 25, 2004)

............................................................................................15

GOLANGCO CORP. vs. PHILIPPINE COMMERCIAL

INTERNATIONAL
BANK
(G.R.
No.
142830CONSTRUCTION, March 24, 2006).......................2

ARTICLE 1330: DEFECTS OF THE WILL....................15

ARTICLE 1311: MUTUALITY OF CONTRACTS...........3

PNB vs. CA (G.R. No. 107569 November 8, 1994)............3
ALLIED BANKING CORP. vs. CA (G.R. No.
124290. January 16, 1998)...................................................3
EQUITABLE PCI vs. NG SHEUNG NGOR (G.R. No.
171545, December 19, 2007)................................................4
ARTICLE 1311: RELATIVITY OF CONTRACTS...........5
BALUYOT vs. CA, THE QC GOVERNMENT and UP
(G.R. No. 122947. July 22, 1999) !No Case Brief!..........5
INTEGRATED PACKAGING CORP. vs. CA and Sand
FIL-ANCHOR PAPER CO., INC. (G.R. No. 115117, June
8, 2000) - !No Case Brief!....................................................5
A & C MINIMART CORP. vs. VILLAREAL.....................5
LLENADO vs. LLENADO..................................................7
ARTICLE 1315: CONSENSUAL CONTRACTS...............9
SOLER vs. CA (G.R. No. 123892. May 21, 2001) .............9

FONTANA RESORT AND COUNTRY CLUB, INC. vs.

SPOUSES TAN, G.R. No. 154670, January 30, 2012 !No
Case Brief!..........................................................................15
ARTICLE 1331: MISTAKE................................................15
THE ROMAN CATHOLIC CHURCH, represented by the
Archbishop of Caceres - versus REGINO PANTE, G.R.
No. 174118, April 11, 2012 !No Case Brief!.....................15
ARTICLE 1332: ONE OF THE PARTIES IS UNABLE
TO READ..............................................................................15
Feliciano vs. Zaldivar G.R. No. 162593.............................15
SWIFT FOODS, INC., vs. SPOUSES MATEO, G.R. No.
170486, September 12, 2011 !No Case Brief!....................16
ARTICLE 1345/1346: SIMULATION OF CONTRACTS
................................................................................................16
JOAQUIN VILLEGAS and EMMA M. VILLEGAS vs.
RURAL BANK OF TANJAY, INC., G.R. No. 161407,
June 5, 2009 !No Case Brief!.............................................16
SPOUSES JOSE and MILAGROS VILLACERAN vs.
JOSEPHINE DE GUZMAN, G.R. No. 169055, February
22, 2012 !No Case Brief!....................................................16

C.F. SHARP & CO. INC. vs. PIONEER INSURANCE &

SURETY CORPORATION, G.R. No. 179469, February
15, 2012 !No Case Brief!......................................................9

ARTICLE 1357/1358: FORM FOR CONVENIENCE OF

THE PARTIES......................................................................16

ARTICLE 1316: REAL CONTRACTS................................9

MARTINEZ vs. CA (G.R. No. 123547. May 21, 2001)....16

CAROLYN M. GARCIA vs. RICA MARIE S. THIO, G.R.

No. 154878, March 16, 2007 !No Case Brief!.....................9

ARTICLE 1359: REFORMATION OF INSTRUMENTS

................................................................................................17

ARTICLE 1318: ESSENTIAL REQUISITES.....................9

BENTIR vs. LEANDA (G.R. No. 128991. April 12, 2000)

............................................................................................17

HEIRS OF PANGAN vs. SPS PERRERAS (G.R. No.

157374, 27-Aug-2009) ......................................................10
PANGAN vs. PERRERAS (G.R. No. 157374, August 27,
2009) ..................................................................................11

PROCESO QUIROS and LEONARDA VILLEGAS, vs.

MARCELO ARJONA, TERESITA BALARBAR, G.R. No.
158901, March 9, 2004.......................................................17

ARTICLE 1319: CONSENT...............................................11

ARTICLE 1370 1379: INTERPRETATION OF

CONTRACTS.......................................................................18

JARDINE DAVIS vs. CA (G.R. No. 128066, June 19,

2000) ..................................................................................11

SECURITY BANK vs. CA (G.R. No. 141733. February 8,

2007) !No Case Brief!........................................................18

ARTICLE 1324: OPTION CONTRACT...........................12

ADORACION REDONDO vs. ANGELINA JIMENEZ,

G.R. No. 161479, October 18, 2007 !No Case Brief!........18

SAN MIGUEL PROPERTIES vs. HUANG (G.R. No.

137290, July 31, 2000) ......................................................12
LIMSON vs. CA (G.R. No. 135929. April 20, 2001) .......14

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

The provision in the construction contract providing for a

ARTICLE 1306: AUTONOMY OF CONTRACTS

defects liability period was not shown as contrary to law,

morals, good customs, pubic order or public policy. By the

GOLANGCO CORP. vs. PHILIPPINE COMMERCIAL

INTERNATIONAL
BANK
(G.R.
No.
142830CONSTRUCTION, March 24, 2006)1

nature of the obligation in such contract, the provision

limiting liability for defects and fixing specific guaranty
periods was not only fair and equitable; it was also
necessary. Without such limitation, the contractor would be
expected to make a perpetual guarantee on all materials and

Facts:

workmanship.

Petitioner WGCC and respondent PCIB entered into a contract

for the construction of the extension of PCIB Tower II. PCIB,
with the concurrence of its consultant TCGI Engineers

The adoption of a one-year guarantee, as done by WGCC

accepted the turnover of the completed work by WGCC which

and PCIB, is established usage in the Philippines for private

was accompanied by a guarantee bond dated July 1, 1992 to

and government construction contracts.[11] The contract did

answer for any defect arising within a period of one year,

not specify a different period for defects in the granitite

wash-out finish; hence, any defect therein should have been
brought to WGCCs attention within the one-year defects

The controversy arose when portions of the granitite wash-out

liability period in the contract.

finish of the exterior of the building began peeling off and

The autonomous nature of contracts is enunciated in Article

falling from the walls in 1993. In 1994, PCIB entered into a

1306 of the Civil Code.

contract with another company to re-do the defective portions

of the building after WGCC manifested that it was not in a
position to do the new finishing work. PCIB then filed a
request to claim for the reimbursement of its expenses for the

Article 1306. The contracting parties may establish such

repairs made by another contractor from WGCC.

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.

Issues:
whether or not petitioner WGCC is liable for defects in the

Obligations arising from contracts have the force of law

granitite wash-out finish that occurred after the lapse of the

between the parties and should be complied with in good

one-year defects liability period. No.

faith.[10] In characterizing the contract as having the force of

law between the parties, the law stresses the obligatory
nature of a binding and valid agreement.

Ruling:

1 Article 1306

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

We cannot countenance an interpretation that undermines a

the parties. If this assent is wanting on the part of the one who

contractual stipulation freely and validly agreed upon. The

contracts, his act has no more efficacy than if it had been done

courts will not relieve a party from the effects of an unwise or

under duress or by a person of unsound mind. 6

unfavorable contract freely entered into.[12]

Similarly, contract changes must be made with the consent of

the contracting parties. The minds of all the parties must meet
ARTICLE 1311: MUTUALITY OF CONTRACTS
PNB vs. CA (G.R. No. 107569 November 8, 1994)2

as to the proposed modification, especially when it affects an

important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is

Private respondents mortgaged their land to obtain a loan from

always a vital component, for it can make or break a capital

Philippine National Bank (PNB) in the amount of P50, 000.00

venture. Thus, any change must be mutually agreed upon,

as evidenced by a Credit Agreement and a promissory note at

otherwise, it is bereft of any binding effect.

12% annual interest. The credit agreement, PN and REM

provide for similar escalation clauses which gives PNB the
right to increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may adopt in
the future even without notice.

We cannot countenance petitioner bank's posturing that the

escalation

clause

at

bench

gives

tounilaterally upwardly

adjust

the

it

unbridled

interest

on

right
private

respondents' loan. That would completely take away from

private respondents the right to assent to an important
PNB informed private respondents in a letter that the interest

modification in their agreement, and would negate the element

rate of their loan was increased to 25% per annum plus a

of mutuality in contracts.

penalty of 6% per annum on past dues. PNB further increased

this interest rate to 30% and 42%.
Thereafter, private respondents exerted efforts to get the PNB

Art. 1308. The contract must bind both contracting parties; its

to re-adopt the 12% interest and to condone the present

validity or compliance cannot be left to the will of one of

interest and penalties due; but to no avail.

them.

Issue: Whether or not the increase in interest rate is authorized

In order that obligations arising from contracts may have the

given that the stipulations embodied by the loan documents

force

are the law between the parties. No.

be mutuality between the parties based on their essential

or

law

between

the

parties,

there

must

equality. A contract containing a condition which makes its

fulfillment dependent exclusively upon the uncontrolled will
of one of the contracting parties, is void.
Ruling:
It is basic that there can be no contract in the true sense in the
absence of the element of agreement, or of mutual assent of

ALLIED BANKING CORP.

124290. January 16, 1998)3

2 Article 1308

3 Article 1308

vs.

CA

(G.R.

No.

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

Ruling:
Facts:

Article 1308 of the Civil Code expresses the principle of

mutuality of contracts. It provides that "the contract must

Spouses Tanqueco owned a 512-square meter which they

bind both the contracting parties; its validity or compliance

leased to petitioner Allied Banking Corporation (ALLIED).

cannot be left to the will of one of them." This binding effect

The lease contract specifically provide that the term of this

of

lease shall be fourteen (14) years commencing from April 1,

the principle that the obligations

1978 and may be renewed for a like term at the option of the

contracts have the force of law between the contracting

lessee."

parties, and there must be mutuality between them based

contract

on

both

parties

is
arising

based

on
from

essentially on their equality under which it is repugnant to

have one party bound by the contract while leaving the
10 years after the said contract of lease, the Tanqueco spouses

other free therefrom.

executed a deed of donation over the subject property in favor

of their four (4) children, herein private respondents.
An express agreement which gives the lessee the sole option
to renew the lease is frequent and subject to statutory
A year before the expiration of the contract of lease, the

restrictions, valid and binding on the parties.

Tanquecos notified petitioner ALLIED that they were no

longer interested in renewing the lease. [2] ALLIED however
rejecter their proposal and insisted on exercising its

The fact that such option is binding only on the lessor and can

option to renew their lease under the same terms with

be exercised only by the lessee does not render it void for lack

additional proposals.

of mutuality. After all, the lessor is free to give or not to give

the option to the lessee. And while the lessee has a right to
elect whether to continue with the lease or not, once he

When the lease contract expired in 1992 private respondents

demanded that ALLIED vacate the premises. But the latter
asserted its sole option to renew the lease.

exercises his option to continue and the lessor accepts, both

parties are thereafter bound by the new lease agreement. Their
rights and obligations become mutually fixed, and the lessee
is entitled to retain possession of the property for the duration
of the new lease, and the lessor may hold him liable for the
rent therefor. The lessee cannot thereafter escape liability even

Issue/s:

if he should subsequently decide to abandon the premises.

Mutuality obtains in such a contract and equality exists

Whether a stipulation in a contract of lease to the effect that

between the lessor and the lessee since they remain with the

the contract "may be renewed for a like term at the option of

same faculties in respect to fulfillment.[7]

the lessee" is void for being potestative or violative of the

principle of mutuality of contracts under Art. 1308 of the Civil
Code. No.

EQUITABLE PCI vs. NG SHEUNG NGOR (G.R. No.

171545, December 19, 2007)4
4 Article 1308

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

2. that the stipulated rate of interest will be reduced if

the applicable maximum rate of interest is reduced by law
FACTS:

or by the Monetary Board (de-escalation clause).

Respondents, Ng Sheung Ngor, et.al filed an action for

annulment and/or reformation of documents and contracts
against petitioner bank and its employees, claiming that they

Equitable dictated the interest rates if the term (or period for

were induced to avail of its peso and dollar credit facilities by

repayment) of the loan was extended. Respondents had no

offering low interest rates, which they accepted. However,

choice but to accept them. This was a violation of Article 1308

they were unaware of the escalation clauses stipulated therein.

of the Civil Code. Furthermore, the assailed escalation clause

did not contain the necessary provisions for validity, that is, it
neither provided that the rate of interest would be increased

ISSUE:

only if allowed by law or the Monetary Board, nor allowed deescalation. For these reasons, the escalation clause was void.

WON the escalation clause violated the principle of mutuality

of contracts. YES.
Consequently, respondents should pay Equitable the interest
rates of 12.66% p.a. for their dollar-denominated loans and
HELD:
Escalation clauses are not void per se. However, one which

20% p.a. for their peso-denominated loans from January 10,

2001 to July 9, 2001. Thereafter, Equitable was entitled to
legal interest of 12% p.a. on all amounts due.

grants the creditor an unbridled right to adjust the interest

independently and upwardly, completely depriving the debtor
of the right to assent to an important modification in the
agreement is void. Clauses of that nature violate the principle
of mutuality of contracts. Article 1308 of the Civil Code holds

ARTICLE 1311: RELATIVITY OF CONTRACTS

BALUYOT vs. CA, THE QC GOVERNMENT and UP
(G.R. No. 122947. July 22, 1999) !No Case Brief!

that a contract must bind both contracting parties; its validity

or compliance cannot be left to the will of one of them

INTEGRATED PACKAGING CORP. vs. CA and Sand

FIL-ANCHOR PAPER CO., INC. (G.R. No. 115117, June
8, 2000) - !No Case Brief!
A & C MINIMART CORP. vs. VILLAREAL5

For this reason, we have consistently held that a valid

escalation clause provides:
FACTS:
1. that the rate of interest will only be increased if the

The subject property is a one-storey commercial building

applicable maximum rate of interest is increased by law or

constructed on a parcel of land in Paranaque. Petitioner leased

by the Monetary Board; and

the six units of the subject property from Joaquin Bonifacio

under a lease agreement and which already expired but
5 Article 1311

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

renewed by Teresita Bonifacio for another five years.

contract, there is no corresponding liability and no cause of

However, ownership of the subject property is under dispute.

action may arise therefrom. [22] This is provided for in Article

Respondents and the Spouses Joaquin claim ownership over

1311 of the Civil Code:

the subject property.

Article 1311. Contracts take effect only between the parties,

Respondents claim ownership based on a sale of property on

their assigns and heirs, except in case where the rights and

execution pending appeal in a separate case wherein the

obligations arising from the contract are not transmissible by

respondents filed an action for damages against the spouses

their nature, or by stipulation or by provision of law. The heir

Sevilla who were the original owners of the subject property.

is not liable beyond the value of the property he received from

While the case was pending on appeal, the subject property

the decedent.

was sold at public auction where the respondents were the

highest bidder. On the other hand, the spouses Bonifacio claim
to have purchased the property from the spouses Sevilla.

The Lease Contract dated 22 January 1998, was executed

between the spouses Bonifacio and petitioner. It is undisputed
that none of the respondents had taken part, directly or

Meanwhile, upon learning that the spouses Bonifacio's claim

indirectly, in the contract in question. Respondents also did

over the subject property had been seriously challenged,

not enter into contract with either the lessee or the lessor, as to

petitioner stopped paying its rentals, in violation of the

an assignment of any right under the Lease Contract in

renewed Lease Contract. Thereafter, a case for Unlawful

question. The Lease Contract, including the stipulation for the

Detainer was filed against petitioner. In the trial court, it

3% penalty interest, was bilateral between petitioner and

rendered a decision ordering petitioners to pay the unpaid

Teresita Bonifacio. Respondents claim ownership over the

rentals to LB, since the ownership over the property is yet to

subject property, but not as a successor-in-interest of the

be determined; ordering petitioners to furnish a copy of the

spouses Bonifacios. They purchased the property in an

Lease Contract to Respondents.

execution sale from the spouses Sevilla. Thus, respondents

cannot succeed to any contractual rights which may accrue to
the spouses Bonifacio.

ISSUE:
WON Respondents are entitled to the benefits of the contract
entered into between petitioner and Spouses Bonifacio. NO.

HELD:
It is a well-known rule that a contractual obligation or liability,
or an action ex-contractu, must be founded upon a contract,
oral or written, either express or implied. If there is no

Contracts produce an effect as between the parties who

execute them. A contract cannot be binding upon and cannot
be enforced by one who is not party to it.

In the present case, the spouses Bonifacio, who were named as

the lessors in the Lease Contracts, dated 3 August 1992 and 22
January 1998, are already adjudged not to be the real owners
of the subject property. In Civil Case No. 90-2551, Branch 63
of the Makati RTC declared that the Deed of Sale, executed on

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

17 June 1986, between the spouses Bonifacio and the spouses

Sevilla was a forgery and, hence, did not validly transfer
ownership to the spouses Bonifacio. At present, there is a

Upon the death of Orlando, his wife Wenifreda took over the

pending appeal before the Supreme Court, which would

operation of the gasoline station. Meanwhile, Cornelio sold his

determine who between the respondents and the spouses

property to his children through a DOS, which subject land

Sevilla are the rightful owners of the property.

forms part of Lot 249-D. Cornelio passed away, thereafter,

Eduardo informed Wenifreda of his desire to take over the
subject lot, but no avail. A case for Unlawful Detainer was

Since the spouses Bonifacio are not the owners of the subject

filed against her by Eduardo, which was granted by the MTC,

property, they cannot unjustly benefit from it by collecting

reversed by the RTC and reinstated MTC's decision in the CA.

rent which should accrue to the rightful owners of the same.

Hence, the Makati RTC, Branch 132, had set up a bank
account where the rent due on the subject property should be
deposited and kept in trust for the real owners thereto.

Petitioner alleged that the transfer and conveyance of the

subject lot by Cornelio in favor of respondents was fraudulent
and in bad faith considering that the agreement provided that

LLENADO vs. LLENADO6

while the lease is in force, the subject lot cannot be sold,

transferred or conveyed to any third party;

FACTS:
the subject in dispute is a parcel of land denominated as Lot
249-D-1 registered in the names of Eduardo and Jorge

ISSUE:

Llenado. The subject land once formed part of Lot 249-D

owned by and registered in the name of Cornelio Llenado,

WON the sale of the subject lot by Cornelio to his sons is

father of Jorge and Eduardo. Cornelio leased the land to

invalid for violating the prohibitory clause in the lease

Romeo, his nephew for a period of five years and renewable

agreement between Cornelio and Orlando and contravening

for another 5 years at the option of Cornelio. Eventually,

the right of first refusal of Orlando over the subject lot. NO.

Romeo assigned his rights to his cousin, Orlando, which was

executed in an agreement. The parties agreed that Orlando
shall have the option to renew the lease contract for another
three years, renewable after four years, and that during the
period that the agreement is enforced, the property cannot be
sold, transferred, alienated or conveyed in whatever manner to
any third party. Shortly thereafter, Cornelio and Orlando
entered into a Supplementary Agreement amending the
previous agreement wherein Orlando was given an additional
option to renew the lease contract for an aggregate period of
10 years at 5-year intervals in compliance with the
requirements of Mobil Phils., Inc. for the operation of a
gasoline station which was subsequently built thereon.

HELD:
It is not disputed that the lease agreement contained an option
to renew and a prohibition on the sale of the subject lot in
favor of third persons while the lease is in force. Petitioner
claims that when Cornelio sold the subject lot to respondents
Eduardo and Jorge the lease was in full force and effect, thus,
the sale violated the prohibitory clause rendering it invalid. In
resolving this issue, it is necessary to determine whether the
lease agreement was in force at the time of the subject sale
and, if it was in force, whether the violation of the prohibitory
clause invalidated the sale.

6 Article 1311

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

years. While the option to renew is an enforceable right, it

must necessarily be first exercised to be given effect.
Under Article 1311 of the Civil Code, the heirs are bound by
the contracts entered into by their predecessors-in-interest
except when the rights and obligations therein are not
transmissible by their nature, by stipulation or by provision of

There is no dispute that in the instant case, the lessees (private

law. A contract of lease is, therefore, generally transmissible

respondents) were granted the option to renew the lease for

to the heirs of the lessor or lessee. It involves a property right

another five (5) years after the termination of the original

and, as such, the death of a party does not excuse non-

period of fifteen years. Yet, there was never any positive act

performance of the contract. The rights and obligations pass to

on the part of private respondents before or after the

the heirs of the deceased and the heir of the deceased lessor is

termination of the original period to show their exercise of

bound to respect the period of the lease. The same principle

such option. The silence of the lessees after the termination of

applies to the option to renew the lease. As a general rule,

the original period cannot be taken to mean that they opted to

covenants to renew a lease are not personal but will run with

renew the contract by virtue of the promise by the lessor, as

the land. Consequently, the successors-in-interest of the lessee

stated in the original contract of lease, to allow them to renew.

are entitled to the benefits, while that of the lessor are

Neither can the exercise of the option to renew be inferred

burdened with the duties and obligations, which said

from their persistence to remain in the premises despite

covenants conferred and imposed on the original parties.

petitioners demand for them to vacate. x x x

The foregoing principles apply with greater force in this case

Similarly, the election of the option to renew the lease in this

because the parties expressly stipulated in the March 31, 1978

case cannot be inferred from petitioner Wenifredas continued

Agreement that Romeo, as lessee, shall transfer all his rights

possession of the subject lot and operation of the gasoline

and interests under the lease contract with option to renew in

station even after the death of Orlando on November 7,

favor of the party of the Third Part (Orlando), the latters

1983 and the expiration of the lease contract on December 3,

heirs, successors and assigns indicating the clear intent to

1983. In the unlawful detainer case against petitioner

allow the transmissibility of all the rights and interests of

Wenifreda and in the subject complaint for annulment of

Orlando under the lease contract unto his heirs, successors or

conveyance, respondents consistently maintained that after the

assigns. Accordingly, the rights and obligations under the

death of Orlando, the lease was terminated and that they

lease contract with option to renew were transmitted

permitted petitioner Wenifreda and her children to remain in

from Orlando to his heirs upon his death on November 7,

possession of the subject property out of tolerance and respect

1983.

for the close blood relationship between Cornelio and

Orlando. It was incumbent, therefore, upon petitioner as the
plaintiff with the burden of proof during the trial below to
establish by some positive act that Orlando or his heirs

It does not follow, however, that the lease subsisted at the time

exercised the option to renew the lease. After going over the

of

29,

records of this case, we find no evidence, testimonial or

1987. When Orlando died on November 7, 1983, the lease

documentary, of such nature was presented before the trial

contract was set to expire 26 days later or on December 3,

court to prove that Orlando or his heirs exercised the option to

1983, unless renewed by Orlandos heirs for another four

renew prior to or at the time of the expiration of the lease on

the

sale

of

the

subject

lot

on January

OBLIGATIONS AND CONTRACTS S.Y. 2012-2013

3rd EXAM COVERAGE: Article 1306 to 1379

December 3, 1983. In particular, the testimony of petitioner

Wenifreda is wanting in detail as to the events surrounding the
implementation of the subject lease agreement after the death
of Orlando and any overt acts to establish the renewal of said
lease.

ARTICLE 1315: CONSENSUAL CONTRACTS

SOLER vs. CA (G.R. No. 123892. May 21, 2001)
Facts:
Petitioner Jazmin Soler is a well known licensed professional
interior designer. In November 1986, she was convinced by
Ms. Nida Lopez COMBANKs manager, to provide the
designs for the renovation of the branch offices. When
petitioner accepted the project Ms. Lopez assured her that she
would be compensated for her services. Petitioner told Ms.
Lopez that her professional fee wasP10, 000.00 to which Ms.
Lopez acceded. Because of the said project, petitioner
requested Ms. Lopez to provide her the blueprints of the office
which Ms. Lopez was able to provide. Also, petitioner Soler
hired persons to complete the design for COMBANK and on
December 1986, the layout and the design were submitted.
Subsequently, petitioner repeatedly demanded payment for her
services but Ms. Lopez replied that she was not entitled to it
because her designs did not conform to the bank's policy of
having a standard design, and that there was no agreement
between her and the bank. Hence, the present case.

"(b) perfection or birth of the contract, which is the moment

when the parties come to agree on the terms of the contract;
and
"(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract."20
In the case at bar, there was a perfected oral contract. When
Ms. Lopez and petitioner met in November 1986, and
discussed the details of the work, the first stage of the contract
commenced. When they agreed to the payment of the ten
thousand pesos (P10,000.00) as professional fees of petitioner
and that she should give the designs before the December
1986 board meeting of the bank, the second stage of the
contract proceeded, and when finally petitioner gave the
designs to Ms. Lopez, the contract was consummated.
On the second issue, the discussions between petitioner and
Ms. Lopez were to the effect that she had authority to engage
the services of petitioner. During their meeting, she even gave
petitioner specifications as to what was to be renovated in the
branch premises and when petitioners requested for the
blueprints of the building, Ms. Lopez supplied the same.
It is familiar doctrine that if a corporation knowingly permits
one of its officers, or any other agent, to act within the scope
of an apparent authority, it holds him out to the public as
possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the
agent's authority.21
Notes:
Petitioner may be paid on the basis of quantum meruit. "It is
essential for the proper operation of the principle that there is
an acceptance of the benefits by one sought to be charged for
the services rendered under circumstances as reasonably to
notify him that the lawyer performing the task was expecting
to be paid compensation therefor. The doctrine of quantum
meruit is a device to prevent undue enrichment based on the
equitable postulate that it is unjust for a person to retain
benefit without paying for it.

Issue/s:
1. Whether or not there was a perfected contract between
petitioner Jazmin Soler and respondents COMBANK and
Nida Lopez. Yes
2. Whether or not Nida Lopez, the manager of the bank
branch, had authority to bind the bank in the transaction. Yes

C.F. SHARP & CO. INC. vs. PIONEER INSURANCE &

SURETY CORPORATION, G.R. No. 179469, February
15, 2012 !No Case Brief!

Ruling:
On the first issue,
"A contract undergoes three stages:
"(a) preparation, conception, or generation, which is the period
of negotiation and bargaining, ending at the moment of
agreement of the parties;

ARTICLE 1316: REAL CONTRACTS

CAROLYN M. GARCIA vs. RICA MARIE S. THIO, G.R.
No. 154878, March 16, 2007 !No Case Brief!

ARTICLE 1318: ESSENTIAL REQUISITES

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3rd EXAM COVERAGE: Article 1306 to 1379

HEIRS OF PANGAN vs. SPS PERRERAS (G.R. No.

157374, 27-Aug-2009)
FACTS:
Spouses Pangan were the owners of the lot and two-door
apartment (subject properties). On 2-Jun-1989, Consuelo
Pangan agreed to sell to the respondents, Spouses Perreras, the
subject properties for P540K. on the same day, Consuelo
received P20K from respondents, as earnest money, which
was evidenced by a receipt, which also stipulated the terms
and conditions of the parties agreement.

Later, they agreed to increase the purchase price from P540K

to P580K. in compliance with the agreement, the respondents
then issued two checks (P200K and P250K) payable to
Consuelo, however, she refused to accept the checks claiming
that her children opposed the sale, so she offered to return the
earnest money of P20K to respondents.

Respondents insisted on enforcing the agreement, and

instituted an action for specific performance.

On one hand, Consuelo claims that she was justified from

backing out from the agreement since her children became coowners of the property upon the death of his husband; thus,
consent from the co-owners is necessary. Since, her children
disapproved of the sale, the contract became ineffective for
lack of consent.

ISSUE:
WON there was a perfected contract between the parties. YES

HELD:
There was a perfected contract between the parties since all
the essential requisites of a contract were present

Article 1318 of the Civil Code declares that no contract exists

unless the following requisites concur: (1) consent of the
contracting parties;
(2) object certain which is the subject
matter of the contract; and (3) cause of the obligation
established. Since the object of the parties agreement
involves properties co-owned by Consuelo and her children,
the petitioners-heirs insist that their approval of the sale
initiated by their mother, Consuelo, was essential to its

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perfection. Accordingly, their refusal amounted to the absence

of the required element of consent.

That a thing is sold without the consent of all the co-owners

does not invalidate the sale or render it void. Article 493 of
the Civil Code recognizes the absolute right of a co-owner to
freely dispose of his pro indiviso share as well as the fruits and
other benefits arising from that share, independently of the
other co-owners. Thus, when Consuelo agreed to sell to the
respondents the subject properties, what she in fact sold was
her undivided interest that, as quantified by the RTC,
consisted of one-half interest, representing her conjugal share,
and one-sixth interest, representing her hereditary share.

The petitioners-heirs nevertheless argue that Consuelos

consent was predicated on their consent to the sale, and that
their disapproval resulted in the withdrawal of Consuelos
consent. Yet, we find nothing in the parties agreement or
even conduct save Consuelos self-serving testimony that
would indicate or from which we can infer that Consuelos
consent depended on her childrens approval of the sale. The
explicit terms of the June 8, 1989 receipt provide no occasion
for any reading that the agreement is subject to the petitionersheirs favorable consent to the sale.

The presence of Consuelos consent and, corollarily, the

existence of a perfected contract between the parties are
further evidenced by the payment and receipt of P20K, an
earnest money by the contracting parties common usage. The
law on sales, specifically Article 1482 of the Civil Code,
provides thatwhenever earnest money is given in a contract of
sale, it shall be considered as part of the price and proof of the
perfection of the contract. Although the presumption is not
conclusive, as the parties may treat the earnest money
differently, there is nothing alleged in the present case that
would give rise to a contrary presumption. In cases where the
Court reached a conclusion contrary to the presumption
declared in Article 1482, we found that the money initially
paid was given to guarantee that the buyer would not back out
from the sale, considering that the parties to the sale have yet
to arrive at a definite agreement as to its terms that is, a
situation where the contract has not yet been perfected. These
situations do not obtain in the present case, as neither of the
parties claimed that the respondents, as vendees that they
would not back out from the sale gave the P20K merely as
guarantee. As we have pointed out, the terms of the parties
agreement are clear and explicit; indeed, all the essential
elements of a perfected contract are present in this case.
While the respondents required that the occupants vacate the
subject properties prior to the payment of the second
installment, the stipulation does not affect the perfection of the
contract, but only its execution.

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3rd EXAM COVERAGE: Article 1306 to 1379

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In sum, the case contains no element, factual or legal, that

negates the existence of a perfected contract between the
parties.

a contract of sale, it shall be considered as part of the price and

proof of the perfection of the contract.Although the
presumption is not conclusive, as the parties may treat the
earnest money differently, there is nothing alleged in the
present case that would give rise to a contrary presumption.

PANGAN vs. PERRERAS (G.R. No. 157374, August 27,

2009)
Facts:

Notes:

Cayetano and Consuelo Pangan were the owners of the lot and
two-door apartment which are the subject properties in this
case. On June 2, 1989, Consuelo agreed to sell to the
respondents the subject properties for the price of P540,000.00
and on the same day, received P20,000.00 from the
respondents as earnest money, as evidenced by a receipt.
In compliance with the agreement, the respondents issued two
checks payable to Consuelo. Consuelo, however, refused to
accept the checks. Consuelo claimed that she was justified in
backing out from the agreement on the ground that the sale
was subject to the consent of the petitioners-heirs who became
co-owners of the property upon the death of her husband.
Since the petitioners-heirs disapproved of the sale, Consuelo
claimed that the contract became ineffective for lack of the
requisite consent. She then expressed her willingness to return
the P20,000.00 earnest money she received from the
respondents.7
Issue/s:
Was there a perfected contract between the parties?
Ruling:
There was a perfected contract between the parties since all
the essential requisites of a contract were present
That a thing is sold without the consent of all the co-owners
does not invalidate the sale or render it void. Article 493 of the
Civil Code8 recognizes the absolute right of a co-owner to
freely dispose of his pro indiviso share as well as the fruits and
other benefits arising from that share, independently of the
other co-owners. Thus, when Consuelo agreed to sell to the
respondents the subject properties, what she in fact sold was
her undivided interest that, as quantified by the RTC,
consisted of one-half interest, representing her conjugal share,
and one-sixth interest, representing her hereditary share.
The petitioners-heirs nevertheless argue that Consuelos
consent was predicated on their consent to the sale, and that
their disapproval resulted in the withdrawal of Consuelos
consent. Yet the court found nothing in the parties agreement
or even conduct that would indicate that Consuelos consent
depended on her childrens approval of the sale. The explicit
terms of the receipt provide no occasion for any reading that
the agreement is subject to the petitioners-heirs favorable
consent to the sale.
Furthermore, the law on sales, specifically Article 1482 of the
Civil Code, provides that whenever earnest money is given in

In a contract of sale, the title to the property passes to the

vendee upon the delivery of the thing sold; while in a contract
to sell, ownership is, by agreement, reserved in the vendor and
is not to pass to the vendee until full payment of the purchase
price. In a contract to sell, the payment of the purchase price is
a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force.
ARTICLE 1319: CONSENT
JARDINE DAVIS vs. CA (G.R. No. 128066, June 19, 2000)
Facts:
Sometime in November 1992, a bidding for the supply and
installation of generators for PUREFOODS was held. Among
the bidders who attended is FEMSCO.
Thereafter, in a letter dated December 12, 1992,
PUREFOODS confirmed the award of the contract to
FEMSCO with the following terms and conditions:
1. Lump sum contract of P6, 137,293.00 and a Performance
Bond equivalent to thirty (30%) of the contract price, and an
All Risk Insurance equivalent to the contract price upon
commencement of the project.
Immediately, FEMSCO submitted the required performance
bond in the amount of P1, 841,187.90 and contractor's all-risk
insurance policy in the amount of P6,137,293.00 which
PUREFOODS acknowledged in a letter.
Later, however PUREFOODS unilaterally canceled the
award. FEMSCO protested the said cancellation and sought a
meeting with PUREFOODS. However, before the matter
could be resolved, PUREFOODS already awarded the project
and entered into a contract with herein petitioner JARDINE.
PUREFOODS argues that its 12 December 1992 letter to
FEMSCO was not an acceptance of the latter's bid proposal
and award of the project but more of a qualified acceptance
constituting a counter-offer which required FEMSCO's
express conforme. Since PUREFOODS never received
FEMSCO's conforme, PUREFOODS was very well within
reason to revoke its qualified acceptance or counter-offer.
Hence, no contract was perfected between PUREFOODS and
FEMSCO.
Issue/s:

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3rd EXAM COVERAGE: Article 1306 to 1379

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Whether or not there existed a perfected contract between

PUREFOODS and FEMSCO. Yes.
Ruling:

ARTICLE 1324: OPTION CONTRACT

To resolve the dispute, there is a need to determine what

constituted the offer and the acceptance.

SAN MIGUEL PROPERTIES vs. HUANG (G.R. No.

137290, July 31, 2000)

1. When petitioner PUREFOODS started the process of

entering into the contract by conducting a bidding, under Art.
1326 of the Civil Code, such bidding is merely an invitation to
make proposals.

Facts:

2. While the bid proposals or quotations submitted by the

prospective suppliers including respondent FEMSCO, are the
offers.
3. The letter dated December 12, 1992 constituted
PUREFOODs acceptance of respondent FEMSCO's offer.
While the same letter enumerated certain "basic terms and
conditions," these conditions were imposed on the
performance of the obligation rather than on the perfection of
the contract.
But even granting arguendo that the 12 December letter
constituted a "conditional counter-offer," respondent
FEMCO's submission of the performance bond and
contractor's all-risk insurance was an implied acceptance, if
not a clear indication of its acquiescence to, the "conditional
counter-offer," which expressly stated that the performance
bond and the contractor's all-risk insurance should be given
upon the commencement of the contract After all, as earlier
adverted to, an acceptance may either be express or implied,
10and this can be inferred from the contemporaneous and
subsequent acts of the contracting parties. Accordingly, for all
intents and purposes, the contract at that point has been
perfected, and respondent FEMSCO'sconforme would only be
a mere surplusage.
Notes:
1. Contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror.
From that moment, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in
keeping with good faith, usage and law. 6 To produce a
contract, the acceptance must not qualify the terms of the
offer. However, the acceptance may be express or implied.7
For a contract to arise, the acceptance must be made known to
the offeror. Accordingly, the acceptance can be withdrawn or
revoked before it is made known to the offeror.
2. In Babasa v. Court of Appeals 8 we distinguished between a
condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an
obligation. While failure to comply with the first condition
results in the failure of a contract, failure to comply with the
second merely gives the other party options and/or remedies to
protect his interests.

Petitioner San Miguel Properties owns two parcels of land

which were offered to Atty Dauz who was acting in behalf of
respondent spouses Huang. The subject properties were
offered for sale in cash; however, Atty. Dauz gave a counteroffer to pay the purchase price in 8 monthly installments
instead, which San Miguel refused.
So on March 29, 1994, Atty. Dauz sent another proposal and
gave P1,000,000.00 representing earnest-deposit money, so
that his clients may be given the exclusive option to purchase
the property within the 30 days from date of the acceptance of
the said proposal.
San Miguel manifested their acceptance and negotiations
commenced afterwards. However, the parties were not able to
agree on the terms of the payment. And so on July 7, 1994, the
petitioner informed the respondents that they are returning the
earnest-deposit as they failed to come into an agreement.
Issue/s:
Whether or not the acceptance of the proposal dated March 29
merely resulted in an option contract. Yes.
WON the failure to come into an agreement as to the mode of
payment was fatal to the perfection of the contract of sale.
Ruling:
1. With regard to the alleged payment and acceptance of
earnest money, the Court holds that respondents did not give
the P1 million as "earnest money" as provided by Art. 1482 of
the Civil Code. They presented the amount merely as a deposit
of what would eventually become the earnest money or
downpayment should a contract of sale be made by them. The
amount was thus given not as a part of the purchase price and
as proof of the perfection of the contract of sale but only as a
guarantee that respondents would not back out of the sale. The
P1 million "earnest-deposit" could not have been given as
earnest money as contemplated in Art. 1482 because, at the
time when petitioner accepted the terms of respondents offer
of March 29, 1994, their contract had not yet been perfected.
Equally compelling as proof of the absence of a perfected sale
is the second condition that, during the option period, the
parties would negotiate the terms and conditions of the
purchase. The stages of a contract of sale are as follows: (1)
negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time
the contract is perfected; (2) perfection, which takes place

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3rd EXAM COVERAGE: Article 1306 to 1379

upon the concurrence of the essential elements of the sale

which are the meeting of the minds of the parties as to the
object of the contract and upon the price; and (3)
consummation, which begins when the parties perform their
respective undertakings under the contract of sale, culminating
in the extinguishment thereof.[12] In the present case, the
parties never got past the negotiation stage.
2. In Navarro v. Sugar Producers Cooperative Marketing
Association, Inc.,[14] we laid down the rule that the manner of
payment of the purchase price is an essential element before a
valid and binding contract of sale can exist. Although the Civil
Code does not expressly state that the minds of the parties
must also meet on the terms or manner of payment of the
price, the same is needed, otherwise there is no sale.

Notes:
An obligation is a juridical necessity to give, to do or not to do
(Art. 1156, Civil Code).
The obligation is constituted upon the concurrence of the
essential elements thereof, viz:
(a) The vinculum juris or juridical tiewhich is the efficient
cause established by the various sources of obligations (law,
contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and
(c) the subject-persons who, viewed from the demandability of
the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157,
Civil Code), which is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service (Art. 1305, Civil Code).
A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation.
1. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time
the contract is concluded (perfected).
2. The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a
mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A contract
which requires, in addition to the above, the delivery of the
object of the agreement, as in a pledge or commodatum, is
commonly referred to as a realcontract. In a solemn contract,
compliance with certain formalities prescribed by law, such as
in a donation of real property, is essential in order to make the

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act valid, the prescribed form being thereby an essential

element thereof.
3. The stage of consummation begins when the parties
perform their respective undertakings under the contract
culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent
source of obligation, serve as a binding juridical relation.
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale (absolute or conditional) vs. Perfected
Contract of Option:
a. Conditional sale - in a "Contract to Sell" the ownership of
the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. 2
b. Absolute sale - where the contract is devoid of any proviso
that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership
will then be transferred to the buyer upon actual or
constructive delivery (e.g., by the execution of a public
document) of the property sold.
c. Perfected contract of Option - An accepted unilateral
promise which specifies the thing to be sold and the price to
be paid, coupled with a valuable consideration distinct and
separate from the price (Art. 1479)
Observe that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy
ensues and both parties are then reciprocally bound to comply
with their respective undertakings. 8
Policitation - An imperfect promise which is merely an offer.
Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only
as proposals. These relations, until a contract is perfected, are
not considered binding commitments. Thus, at any time prior
to the perfection of the contract, either negotiating party may
stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when
the offeree learns of the withdrawal Where a period is given to
the offeree within which to accept the offer, the following
rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance
has been made, before the offeror's coming to know of such

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3rd EXAM COVERAGE: Article 1306 to 1379

fact, by communicating that withdrawal to the offeree (see

Art. 1324).
The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of
"option" is deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself, and it is
to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the offer
before its acceptance(exercise of the option) by the optioneeofferee, the latter may not sue for specific performance on the
proposed contract ("object" of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the
option. In these cases, care should be taken of the real nature
of the consideration given, for if, in fact, it has been intended
to be part of the consideration for the main contract with a
right of withdrawal on the part of the optionee, the main
contract could be deemed perfected; a similar instance would
be an "earnest money" in a contract of sale that can evidence
its perfection (Art. 1482, Civil Code).
Option vs. Right of First Refusal
a.) An option (1479 par. 2) or an offer (Art. 1319) would
require, among other things, a clear certainty on both the
object and the cause or consideration of the envisioned
contract. Governed by laws on contracts.
b.) In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be
dependent not only on the grantor's eventual intention to enter
into a binding juridical relation with another but also on terms,
including the price, that obviously are yet to be later firmed
up. Governed not by laws of contract but of other general laws
and those governing human conduct.

LIMSON vs. CA (G.R. No. 135929. April 20, 2001)

Facts:
Petitioner Limson alleged that respondent spouses de Vera
offered to sell to petitioner a specific parcel of land and that on
31 July 1978 she agreed to buy it at P34.00 per square meter
and gave P20, 000.00 to respondent spouses as "earnest
money;" for which, the respondent spouses gave her a 10-day
option period to purchase the property.
On 5 September 1978 petitioner learned that the property was
already being sold to SUNVAR Corp and ultimately on

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September 15, 1978, a deed of sale between respondent

spouses and SUNVAR was executed. Petitioner now claim
that when respondent spouses sold the property in dispute to
SUNVAR, her valid and legal right to purchase it was
violated.
Issue:
At issue is the nature of the contract entered into between
petitioner Limson and respondent spouses de Vera. And WON
there was a perfected contract to sell between her and
respondent spouses.
Ruling:
A scrutiny of the facts as well as the evidence of the parties
overwhelmingly leads to the conclusion that the agreement
between the parties was a contract of option and not a contract
to sell.
The consideration of P20,000.00 paid by petitioner was
designated as an earnest money, however a careful
examination of the words indicate that it is really an option
money.
In the interpretation of contracts, the ascertainment of the
intention of the contracting parties is to be discharged by
looking to the words they used to project that intention in their
contracts. The Receipt readily shows that respondent spouses
and petitioner only entered into a contract of option; a contract
by which respondent spouses agreed with petitioner that the
latter shall have the right to buy the former's property at a
fixed price of P34.00 per square meter within ten (10) days
from 31 July 1978.
Also, there is nothing in the Receipt which indicates that the
P20,000.00 was part of the purchase price. And when
petitioner gave the "earnest money" the Receipt did not reveal
that she was bound to pay the balance of the purchase price.
On or before 10 August 1978, the last day of the option
period, no affirmative or clear manifestation was made by
petitioner to accept the offer. Certainly, there was no
concurrence of private respondent spouses offer and
petitioners acceptance thereof within the option period.
Consequently, there was no perfected contract to sell between
the parties.
On 11 August 1978 the option period expired and the
exclusive right of petitioner to buy the property of respondent
spouses ceased.
Notes:
Option - is 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 time certain, 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. It is also sometimes called an "unaccepted
offer." An option is not itself a purchase, but merely secures

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3rd EXAM COVERAGE: Article 1306 to 1379

the privilege to buy.8 It is not a sale of property but a sale of

right to purchase.9
Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to
transfer, any title to, or any interest or right in the subject
matter, but is merely a contract by which the owner of the
property gives the optionee the right or privilege of accepting
the offer and buying the property on certain terms.11
A contract - like a contract to sell, involves the meeting of
minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some
service.12Contracts, in general, are perfected by mere
consent,13 which is 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.14
"Earnest money" and "option money" are not the same but
distinguished thus; (a) earnest money is part of the purchase
price, while option money is the money given as a distinct
consideration for an option contract; (b) earnest money given
only where there is already a sale, while option money applies
to a sale not yet perfected; and, (c) 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,18 but may even forfeit it depending on the terms of the
option.
TAYAG vs. LACSON (G.R. No. 134971. March 25, 2004)
Facts:
Respondents Lacson,3 and her children were the registered
owners of subject parcels of land.
On March 17, 1996, a group of original farmers/tillers of
respondent Lacsons land executed in favor of the petitioner
separate Deeds of Assignment6 in which the assignees
assigned to the petitioner their respective rights as
tenants/tillers of the landholdings possessed and tilled by them
for and in consideration of P50.00 per square meter. The
petitioner in turn gave varied sums of money to the tenants as
partial payments. However, on August 8, 1996, the
defendants-tenants, wrote the petitioner stating their collective
decision to sell all their rights and interests, as tenants/lessees,
over the landholding to the respondents. So the petitioner filed
a complaint against the defendants-tenants, as well as the
respondents Lacson, for the fixing of the period within which
to pay the agreed purchase price of P50.00 per square meter to
the defendants, as provided for in the Deeds of Assignment.
Issue/s: WON there was a perfected contract of option
between Tayag and Lacson. No.
Ruling:

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We do not agree with the contention of the petitioner that the

deeds of assignment executed by the defendants-tenants are
perfected option contracts.43
An option is a contract by which the owner of the property
agrees with another person that he shall have the right to buy
his property at a fixed price within a certain time. It is a
condition offered 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.
It imposes no binding obligation on the person holding the
option, aside from the consideration for the offer. Until
accepted, it is not, properly speaking, treated as a contract.44
The second party gets in praesenti, not lands, not an agreement
that he shall have the lands, but the right to call for and receive
lands if he elects.45 An option contract is a separate and
distinct contract from which the parties may enter into upon
the conjunction of the option.46
In this case, the defendants-tenants-subtenants, under the
deeds of assignment, granted to the petitioner not only an
option but the exclusive right to buy the landholding. But the
grantors were merely the defendants-tenants, and not the
respondents, the registered owners of the property. Not being
the registered owners of the property, the defendants-tenants
could not legally grant to the petitioner the option, much less
the "exclusive right" to buy the property. As the Latin saying
goes, "NEMO DAT QUOD NON HABET."
ARTICLE 1330: DEFECTS OF THE WILL
FONTANA RESORT AND COUNTRY CLUB, INC. vs.
SPOUSES TAN, G.R. No. 154670, January 30, 2012 !No
Case Brief!

ARTICLE 1331: MISTAKE

THE ROMAN CATHOLIC CHURCH, represented by the
Archbishop of Caceres - versus REGINO PANTE, G.R.
No. 174118, April 11, 2012 !No Case Brief!

ARTICLE 1332: ONE OF THE PARTIES IS UNABLE

TO READ
Feliciano vs. Zaldivar G.R. No. 162593
Facts:
Remigia Feliciano filed a complaint against the
spouses Zaldivar for the declaration of nullity of TCT No. T17993 and reconveyance of the property covered therein. The
said title is registered in the name of Aurelio Zaldivar.

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3rd EXAM COVERAGE: Article 1306 to 1379

Remigia alleged that she was the registered owner of a lot,

part of which is that covered by both the above TCT and TCT
No. 8502. It was originally leased to Pio Dalman, Aurelios
father-in-law. She attempted to mortgage the lot to Ignacio
Gil, but the mortgage did not push through. She vehemently
denies ever executing a joint affidavit confirming the sale to
Gil and insists that TCT No. 8502 was never lost.
The Zaldivars, on the other hand, claimed that
Aurelio bought the property from Dalman who, in turn, bought
the same from Gil in 1951. Gil allegedly purchased the
property from Remegia, the sale of which was evidenced by
the joint affidavit of confirmation of sale that Remegia and her
uncle purportedly executed before a notary public in 1965.
Issue:
Whether or not the fraud or mistake attended the
execution of the joint affidavit of confirmation of sale.
Held:
Remegia stated in the witnesss stand that she can read
Visayan, but cannot understand well idiomatic visayan terms
(laglom nga visayan). Considering her limited educational
attainment, Regemia did not understand the full import of the
joint affidavit of confirmation of sale and, consequently, fraud
or mistake attended its execution. The spouses Zaldivar tried
to discharge this presumption by presenting Atty. Francisco
Velez who notarized the said document. Atty. Velez testified
that he "read and interpreted" the document to the affiants and
he asked them whether the contents were correct before
requiring them to affix their signatures thereon. The bare
statement of Atty. Velez that he "read and interpreted" the
document to the affiants and that he asked them as to the
correctness of its contents does not necessarily establish that
Remegia actually comprehended or understood the import of
the joint affidavit of confirmation of sale. Nowhere is it stated
in the affidavit itself that its contents were fully explained to
Remegia in the language that she understood before she signed
the same. Thus, to the mind of the Court, the presumption of
fraud or mistake attending the execution of the joint affidavit
of confirmation of sale was not sufficiently overcome.
SWIFT FOODS, INC., vs. SPOUSES MATEO, G.R. No.
170486, September 12, 2011 !No Case Brief!

ARTICLE 1345/1346: SIMULATION OF CONTRACTS

JOAQUIN VILLEGAS and EMMA M. VILLEGAS vs.
RURAL BANK OF TANJAY, INC., G.R. No. 161407,
June 5, 2009 !No Case Brief!
SPOUSES JOSE and MILAGROS VILLACERAN vs.
JOSEPHINE DE GUZMAN, G.R. No. 169055, February
22, 2012 !No Case Brief!

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ARTICLE 1357/1358: FORM FOR CONVENIENCE OF

THE PARTIES
MARTINEZ vs. CA (G.R. No. 123547. May 21, 2001)
Facts:
In February 1981, Godofredo De la Paz and his sister
Manuela De la Paz, married to Maximo Hipolito, entered into
an oral contract with petitioner Rev. Fr. Dante Martinez, for
the sale of a lot for the sum of P15,000.00. When the land was
offered for sale to petitioner, he was assured by the De la
Pazes that the lot belonged to Manuela De la Paz. Petitioner
started the construction of a house on the lot.
Private respondents De la Paz sold three lots
(including the lot which was previously sold to Martinez) with
right to repurchase the same within one year to private
respondents spouses Reynaldo and Susan Veneracion for the
sum of P150,000.00 in October 1981. Private respondents
Veneracion never took actual possession of any of these lots
during the period of redemption, but all titles to the lots were
given to him.
Petitioner discovered that the lot he was occupying
with his family had been sold to the spouses Veneracion after
receiving a letter from private respondent claiming ownership
of the land and demanding that they vacate the property and
remove their improvements thereon.
Issue/s:
Whether or not the contract of sale with a right to repurchase
is an equitable mortgage.
Whether or not private respondents Veneracion are buyers in
good faith of the lot in dispute.
Whether or not the sale of the real property must be executed
in a public document.
Held:
The private respondents intended the transaction to
be an equitable mortgage and not a contract of sale: (1) Private
respondents Veneracion never took actual possession of the
three lots; (2) Private respondents De la Paz remained in
possession of the Melencio lot which was co-owned by them
and where they resided; (3) During the period between the
first sale and the second sale to private respondents
Veneracion, they never made any effort to take possession of
the properties; and (4) when the period of redemption had
expired and private respondents Veneracion were informed by
the De la Pazes that they are offering the lots for sale to
another person for P200,000.00, they never objected. It is clear
from these circumstances that both private respondents never
intended the first sale to be a contract of sale, but merely that
of mortgage to secure a debt of P150,000.00.

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The presence of good faith should be ascertained

from the circumstances surrounding the purchase of the land.
Reynaldos claim that he found the lot vacant before the
execution of the first Deed of Sale with Right to Repurchase is
belied by the DPWH inspector who testified that Martinez
home was 100% complete when he conducted an ocular
inspection in the premises. Thus, as early as October, 1981,
private respondents Veneracion already knew that there was
construction being made on the property they purchased.
Art. 1357 and Art. 1358, in relation to Art. 1403(2)
requires that the sale of real property must be in writing for it
to be enforceable. It need not be notarized. If the sale has not
been put in writing, either of the contracting parties can
compel the other to observe such requirement. There is
nothing in the above provisions which require that a contract
of sale of realty must be executed in a public document.
BIENVENIDO C. TEOCO and JUAN C. TEOCO, JR., vs.
METROPOLITAN BANK AND TRUST COMPANY, G.R.
No. 162333, December 23, 2008 !No Case Brief!

ADELAIDA MENESES (deceased), substituted by her heir

MARILYN M. CARBONEL-GARCIA, vs. ROSARIO G.
VENTUROZO, G.R. No. 172196, October 19, 2011 !No Case
Brief!

ARTICLE 1359: REFORMATION OF INSTRUMENTS

BENTIR vs. LEANDA (G.R. No. 128991. April 12, 2000)
Facts:
Respondent corporation Leyte Gulf Traders, Inc.
filed a complaint for reformation of instrument, specific
performance, annulment of conditional sale and damages with
prayer for writ of injunction against petitioners Yolanda
Rosello-Bentir and the spouses Samuel and Charito Pormida.
Respondent corporation alleged that it entered into a contract
of lease of a parcel of land with petitioner Bentir for a period
of 20 years starting May 5, 1968 and was extended for another
4 years or until May 31, 1992. On May 5, 1989, petitioner
Bentir sold the leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent corporation
questioned the sale alleging that it had a right of first refusal.
RTC issued an order dismissing the complaint of corporation
premised on its finding that the action for reformation had
already prescribed.
Issue/s:
Whether or not the complaint for reformation of instrument
has prescribed.

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Held:
The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to express
the true intention of the contracting parties, an instrument
already executed is allowed by law to be reformed.
Reformation, being an extraordinary remedy, must be subject
to limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. The
prescriptive period for actions based upon a written contract
and for reformation of an instrument is ten (10) years under
Article 1144 of the Civil Code. In the case at bar, respondent
corporation had ten (10) years from 1968, the time when the
contract of lease was executed, to file an action for
reformation. Sadly, it did so only on May 15, 1992 or twentyfour (24) years after the cause of action accrued, hence, its
cause of action has become stale, hence, time-barred.
The prescriptive period of ten (10) years provided for
in Art. 1144 applies by operation of law, not by the will of the
parties. Therefore, the right of action for reformation accrued
from the date of execution of the contract of lease in 1968.
PROCESO QUIROS and LEONARDA VILLEGAS, vs.
MARCELO ARJONA, TERESITA BALARBAR, G.R.
No. 158901, March 9, 2004
Facts:
Petitioners Proceso Quiros and Leonarda Villegas
filed a complaint for recovery of ownership and possession of
a parcel of land located at Labney, San Jacinto, Pangasinan.
Petitioners sought to recover from their uncle Marcelo Arjona,
one of the respondents herein, their lawful share of the
inheritance from their late grandmother Rosa Arjona Quiros
alias Doza. Respondent Arjona executed a document
denominated as "PAKNAAN" after the parties reached an
amicable settlement. Petitioners filed a complaint with prayer
for the issuance of a writ of execution of the compromise
agreement which was denied because the subject property
cannot be determined with certainty. The 1st Paknaan purports
to convey a parcel of land consisting of more or less 1 hectare
to petitioners Quiros and Villegas while the 2nd Paknaan
which was prepared and executed on the same date by Jose
Banda who signified his intention to vacate the parcel of land
he was tilling for and in behalf of the Arjona family. The MTC
found that the land referred to in the 2nd Paknaan was
different from the land being occupied by petitioners.
Issue/s:
Whether or not an action for nullification is proper.
Whether or not the amicable settlement (Paknaan) is
valid and enforceable.
Held:
Although both parties agreed to transfer one-hectare
real property, they failed to include in the written document a

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3rd EXAM COVERAGE: Article 1306 to 1379

sufficient description of the property to convey. This error is

not one for nullification of the instrument but only for
reformation (Article 1359). Reformation is a remedy in equity
whereby a written instrument is made or construed so as to
express or conform to the real intention of the parties where
some error or mistake has been committed.
The requisites of Art. 1359 must concur: (1) there
must have been a meeting of the minds of the parties to the
contract; (2) the instrument does not express the true intention
of the parties; and (3) the failure of the instrument to express
the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.
The Paknaan has all the earmarks of a valid contract.
There was meeting of the minds between the contracting
parties. The respondent undertook to convey 1 hectare of land
to petitioners who accepted. Petitioners acceded to the terms
of the Paknaan that was prepared and signed by respondent
Arjona by not disputing its contents and are in fact now
seeking its enforcement. The object is a 1-hectare parcel of
land representing petitioners inheritance from their deceased
grandmother. The cause of the contract is the delivery of
petitioners share in the inheritance. The inability to identify
the exact location of the inherited property does not negate the
principal object of the contract and is correctible by
reformation.
The remedy of nullification, which invalidates the
Paknaan, would prejudice petitioners and deprive them of their
just share of the inheritance. The Paknaan should be enforced
because refusing to do so would have the effect of penalizing
one party for negligent conduct, and at the same time
permitting the other party to escape the consequences of his
negligence and profit.
ARTICLE 1370
CONTRACTS

1379:

INTERPRETATION

OF

SECURITY BANK vs. CA (G.R. No. 141733. February 8,

2007) !No Case Brief!

ADORACION REDONDO vs. ANGELINA JIMENEZ,

G.R. No. 161479, October 18, 2007 !No Case Brief!

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