the Resolution of the trial court which granted the Demurrer to Evidence filed by
JARDINE DAVIES INC. vs. CA and FAR EAST MILLS DIGEST
JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS
SUPPLY CORPORATION, respondents. GRN 128066 June 19, 2000
PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST
MILLS SUPPLY CORPORATION, respondents. GRN 128069 June 19, 2000
FACTS:
In 1992, petitioner PUREFOODS decided to install two 1500 KW generators in its food
processing plant in San Roque, Marikina City. A bidding for the supply and installation
of the generators was held. Out of the 8 prospective bidders who attended the pre-
bidding conference, only 3 bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (FEMSCO), MONARK and ADVANCE POWER submitted bid proposals
and gave bid bonds.
In a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po,
PUREFOODS confirmed the award of the contract to FEMSCO. FEMSCO submitted
the required performance bond in the amount of P1,841,187.90 and contractors all-
risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its
VP Benedicto G. Tope acknowledged in a letter dated 18 December 1992.
However, in a letter dated 22 December 1992, PUREFOODS through its Senior VP
Teodoro L. Dimayuga unilaterally canceled the award as significant factors were
uncovered and brought to their attention which dictate the cancellation and warrant
a total review and re-bid of the project. FEMSCO protested the cancellation of the
award. Before the matter could be resolved, PUREFOODS awarded the project and
entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(JARDINE), which was not one of the bidders.
FEMSCO sued PUREFOODS and JARDINE: PUREFOODS for reneging on its contract,
and JARDINE for its unwarranted interference and inducement.
RTC- Pasig, granted JARDINEs Demurrer to Evidence. The RTC ordered PUREFOODS
to indemnify FEMSCO. FEMSCO and PUREFOODS appealed to CA. FEMSCO appealed
JARDINE resulting in the dismissal of the complaint against it.
CA affirmed the Decision of the trial court. It also reversed the Resolution of the
lower court and ordered JARDINE to pay FEMSCO moral damages for inducing
PUREFOODS to violate the latters contract with FEMSCO. CA denied MR. Hence,
these 2 petitions for review.
ISSUE: WON FEMSCO should be awarded with Moral Damages.
RULING:
YES. 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. The acceptance must not qualify the terms of the offer. However, the
acceptance may be express or implied. For a contract to arise, the acceptance must
be made known to the offeror. Acceptance can be withdrawn or revoked before it is
made known to the offeror.
In the instant case, since PUREFOODS started the process of entering into the
contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
advertisements for bidders are simply invitations to make proposals, applies.
The 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted
acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the
letter, i.e., This will confirm that Pure Foods has awarded to your firm (FEMSCO) the
project, could not be more categorical. 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 1992 letter of petitioner
PUREFOODS constituted a conditional counter-offer, respondent FEMCOs
submission of the performance bond and contractors all-risk insurance was an
implied acceptance, if not a clear indication of its acquiescence to, the conditional
counter-offer,
Petitioner PUREFOODS also argues that it was never in bad faith. But by the unilateral
cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with
bad faith and this was further aggravated by the subsequent inking of a contract
1
between defendant Purefoods and erstwhile co-defendant Jardine. It is very evident
that Purefoods thought that by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into by both parties after
a process of bidding. This, to the Courts mind, is a flagrant violation of the express
provisions of the law and is contrary to fair and just dealings to which every man is
due.
This Court has awarded in the past moral damages to a corporation whose
reputation has been besmirched. In the instant case, respondent FEMSCO has
sufficiently shown that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the project, only to be
canceled later. We thus sustain respondent appellate courts award of moral
damages. We however reduce the award from P2Mto P1M, as moral damages are
never intended to enrich the recipient. Likewise, the award of exemplary damages
by way of example for the public good is excessive and should be reduced to
P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court
erred in ordering it to pay moral damages to respondent FEMSCO as it supposedly
induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may
seem that petitioners PUREFOODS and JARDINE connived to deceive respondent
FEMSCO, we find no specific evidence on record to support such perception. There
is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS.
The similarity in the design submitted to petitioner PUREFOODS by both petitioner
JARDINE and respondent FEMSCO, and the tender of a lower offer by petitioner
JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner
PUREFOODS to violate its contract with respondent FEMSCO.
Heirs of Intac v CA
G.R. No. 17321, October 11, 2012
Topic: Contracts; General Provisions; Definition
DOCTRINE: If the parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the parties are still bound by
their real agreement. In absolute simulation, there is a colorable contract but it has
no substance as the parties have no intention to be bound by it.
FACTS:
Ireneo Mendoza (Ireneo), married to Salvacion Fermin (Salvacion), was the owner of
the subject property, presently covered by TCT No. 242655. Ireneo had two children:
respondents Josefina and Martina (respondents), Salvacion being their stepmother.
When he was still alive, Ireneo, also took care of his niece, Angelina, since she was
three years old until she got married. The property was then covered by TCT No.
106530. On October 25, 1977, Ireneo, with the consent of Salvacion, executed a deed
of absolute sale of the property in favor of Angelina and her husband, Mario
(Spouses Intac). Despite the sale, Ireneo and his family, including the respondents,
continued staying in the premises and paying the realty taxes. After Ireneo died
intestate in 1982, his widow and the respondents remained in the premises. After
Salvacion died, respondents still maintained their residence there. Up to the present,
they are in the premises, paying the real estate taxes thereon, leasing out portions
of the property, and collecting the rentals.
The controversy arose when respondents sought the cancellation of TCT No. 242655,
claiming that the sale was only simulated and, therefore, void. Spouses Intac
resisted, claiming that it was a valid sale for a consideration. The complaint prayed
not only for the cancellation of the title, but also for its reconveyance to them.
Pending litigation, Mario died on May 20, 1995 and was substituted by his heirs, his
surviving spouse, Angelina, and their children, namely, Rafael, Kristina, Ma. Tricia
Margarita, Mario, and Pocholo.
The heirs of Ireneo, the respondents in this case, alleged that: 1. When Ireneo was
still alive, Spouses Intac borrowed the title of the property (TCT No. 106530) from
him to be used as collateral for a loan from a financing institution; 2. they objected
because the title would be placed in the names of said spouses and it would then
appear that the couple owned the property; that Ireneo, however, tried to appease
them, telling them not to worry because Angelina would not take advantage of the
situation considering that he took care of her for a very long time; that during his
lifetime, he informed them that the subject property would be equally divided
among them after his death; and 3. that respondents were the ones paying the real
estate taxes over said property.
Spouses Intac countered, among others, that the subject property had been
transferred to them based on a valid deed of absolute sale and for a valuable
consideration; that the action to annul the deed of absolute sale had already
prescribed; that the stay of respondents in the subject premises was only by
tolerance during Ireneos lifetime because they were not yet in need of it at that
time; and that despite respondents knowledge about the sale that took place on
October 25, 1977, respondents still filed an action against them.
2
RTC ruled in favor of the respondents saying that the sale to the spouses Intac was
null and void. The CA also ruled that there was no consideration in the sale to the
spouses Intac and that the contract was one for equitable mortgage.
ISSUE: Whether the deed of absolute sale was simulated or a valid contract.
HELD:
A contract, as defined in the Civil Code, is a meeting of minds, with respect to the
other, to give something or to render some service. Article 1318 provides:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Accordingly, for a contract to be valid, it must have three essential
elements: (1) consent of the contracting parties; (2) object certain which is the
subject matter of the contract; and (3) cause of the obligation which is established.
All these elements must be present to constitute a valid contract. Consent is
essential to the existence of a contract; and where it is wanting, the contract is non-
existent. In a contract of sale, its perfection is consummated at the moment there is
a meeting of the minds upon the thing that is the object of the contract and upon
the price. Consent is manifested by the meeting of the offer and the acceptance of
the thing and the cause, which are to constitute the contract.
In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was
absolutely simulated for lack of consideration and cause and, therefore, void, as
provided by Articles 1345 and 1346 of the Civil Code.
If the parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the parties are still bound
by their real agreement. Hence, where the essential requisites of a contract are
present and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable between the parties and their
successors in interest.
In absolute simulation, there is a colorable contract but it has no substance
as the parties have no intention to be bound by it. "The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation of the parties." "As a
result, an absolutely simulated or fictitious contract is void, and the parties may
recover from each other what they may have given under the contract."
In the case at bench, the Court is one with the courts below that no valid
sale of the subject property actually took place between the alleged vendors, Ireneo
and Salvacion; and the alleged vendees, Spouses Intac. There was simply no
consideration and no intent to sell it.
The deed of sale executed is void. It was an absolute simulation. Court
made a distinction between absolute and relative simulation.
There was total lack of consideration, thus absolute simulation.
Spouses did not give proof that they paid for it.
There is a missing element in the contract: consent; lack of consideration
MIAA v. Avia (2012)
Topic: Definition of Contracts
DOCTRINE: In construing a contract, the provisions thereof should not be read in
isolation, but in relation to each other and in their entirety so as to render them
effective, having in mind the intention of the parties and the purpose to be achieved.
In other words, the stipulations in a contract and other contract documents should
be interpreted together with the end in view of giving effect to all.
FACTS: In September 1990, petitioner Manila International Airport Authority (MIAA)
entered into a contract of lease with herein respondent Avia Filipinas International
Corporation (AFIC), wherein MIAA allowed AFIC to use specific portions of land as
well as facilities within NAIA exclusively for the latter's aircraft repair station and
chartering operations. The contract was for 1 year, beginning September 1, 1990
until August 31, 1991, with a monthly rental of P6,580.00.
In December 1990, MIAA issued AO No. 1, Series of 1990, which revised the rates of
dues, charges, fees or assessments for the use of its properties, facilities and services
within the airport complex. The AO was made effective on December 1, 1990. As a
consequence, the monthly rentals due from AFIC was increased to P15,996.50.
3
Nonetheless, MIAA did not require AFIC to pay the new rental fee. Thus, it continued
to pay the original fee of P6,580.00.
After the expiration of the contract, AFIC continued to use and occupy the leased
premises giving rise to an implied lease contract on a monthly basis. AFIC kept on
paying the original rental fee without protest on the part of MIAA.
Three years after the expiration of the original contract of lease, MIAA informed
AFIC, through a billing statement dated October 6, 1994, that the monthly rental
over the subject premises was increased to P15,966.50 beginning September 1,
1991, which is the date immediately following the expiration of the original contract
of lease. MIAA sought recovery of the difference between the increased rental rate
and the original rental fee amounting to a total of P347,300.50 covering 37 months
between September 1, 1991 and September 31, 1994. Beginning October 1994, AFIC
paid the increased rental fee. However, it refused to pay the lump sum of
P347,300.50 sought to be recovered by MIAA. For the continued refusal of AFIC to
pay the said lump sum, its employees were denied access to the leased premises
from July 1, 1997 until March 11, 1998. This, notwithstanding, AFIC continued paying
its rentals.
AFIC then filed with the RTC of Quezon City a Complaint for damages with injunction
against MIAA seeking uninterrupted access to the leased premises, recovery of
actual and exemplary damages, refund of its monthly rentals with interest at the
time that it was denied access to the area being rented as well as attorney's fees.
MIAA Contention
MIAA contends that, as an administrative agency possessed of quasi-legislative and
quasi-judicial powers as provided for in its charter, it is empowered to make rules
and regulations and to levy fees and charges; that its issuance of AO No. 1, Series of
1990 is pursuant to the exercise of the abovementioned powers; that by signing the
lease contract, respondent AFIC already agreed and gave its consent to any further
increase in rental rates; as such, the provisions of the lease contract being cited by
the CA which provides that any amendment, alteration or modification [of the lease
contract] shall not be valid and binding, unless and until made in writing and signed
by the parties thereto is deemed complied with because respondent already
consented to having any subsequent amendments to AO No. 1 automatically
incorporated in the lease contract; that the above-quoted provisions should not also
be interpreted as having the effect of limiting the authority of MIAA to impose new
rental rates in accordance with its authority under its charter.
RTC: Ruled in favor of AFIC. It found that MIAA is not entitled to apply the
increase in rentals against AFIC and that MIAA is not entitled to padlock the leased
premises.
CA: Affirmed RTC with Modification.
Issue: Whether the CA correctly interpreted the provisions of the lease contract in
line with the provisions of the civil code and existing jurisprudence on contracts.
HELD: YES. The contention of the petitioner lacks merit.
Article 1306 of the Civil Code provides that 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. Moreover, Article 1374 of the Civil Code clearly provides that the various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.
Indeed, in construing a contract, the provisions thereof should not be read in
isolation, but in relation to each other and in their entirety so as to render them
effective, having in mind the intention of the parties and the purpose to be achieved.
In other words, the stipulations in a contract and other contract documents should
be interpreted together with the end in view of giving effect to all.
In the present case, the Court finds nothing repugnant to law with respect to the
questioned provisions of the contract of lease between petitioner and respondent.
It is true that Article II, Paragraph 2.04 of the Contract of Lease states that any
subsequent amendment to AO No. 4, Series of 1982, which will effect a decrease or
escalation of the monthly rental or impose new and additional fees and charges,
including but not limited to government/MIAA circulars, rules and regulation to this
effect, shall be deemed incorporated herein and shall automatically amend this
Contract insofar as the monthly rental is concerned. However, the Court agrees with
the CA that such provision of the lease contract should not be read in isolation.
Rather, it should be read together with the provisions of Article VIII, Paragraph 8.13,
which provide that any amendment, alteration or modification of the Contract
shall not be valid and binding, unless and until made in writing and signed by the
parties thereto.
It is clear from the foregoing that the intention of the parties is to subject
such amendment to the conformity of both petitioner and respondent. In
the instant case, there is no showing that respondent gave his
acquiescence to the said amendment or modification of the contract.
4
The situation is different with respect to the payments of the increased rental fee
made by respondent beginning October 1994 because by then the amendment to
the contract was made in writing through a bill sent by petitioner to respondent. The
fact that respondent subsequently settled the said bill proves that he acceded to the
increase in rental fee. The same may not be said with respect to the questioned
rental fees sought to be recovered by petitioner between September 1991 and
September 1994 because no bill was made and forwarded to respondent on the basis
of which it could have given or withheld its conformity thereto.
It may not be amiss to point out that during such period, respondent continued to
pay and petitioner kept on receiving the original rental fee of P6,580.00 without any
reservations or protests from the latter. Neither did petitioner indicate in the official
receipts it issued that the payments made by respondent constitute only partial
fulfillment of the latter's obligations. Article 1235 of the Civil Code clearly states that
when the obligee accepts the performance knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with. For failing to make any protest or objection, petitioner
is already estopped from seeking recovery of the amount claimed.
Heirs of Uy v Castillo (2013)
FACTS:
Executed in exchange for the legal services of Atty. Zepeda and the financial
assistance to be extended by Manuel, the Agreement involves respondents transfer
of 40% of the avails of the suit, in the event of a favorable judgment in Civil Case No.
8085. While concededly subject to the same suspensive condition, a Kasunduan was
concluded by respondents with Manuel alone, for the purpose of selling in favor of
the latter 60% of their share in the subject parcels for the agreed price of
P180,000.00
Petitioners commenced the instant suit with the filing of their complaint for specific
performance and damages against the respondents and respondent. Faulting
respondents with unjustified refusal to comply with their obligation under the
Kasunduan,
On 27 January 2005, the RTC rendered a decision finding the Kasunduan valid and
binding between respondents and petitioners who had the right to demand its
fulfillment as Manuels successors-in-interest.
Respondents sought the complete reversal of the appealed decision on the ground
that the Agreement and the Kasunduan were null and void.
On 23 January 2007, the CA rendered the herein assailed decision, setting aside the
RTCs decision, upon the following findings and conclusions, to wit: (a) the
Agreement and Kasunduan are byproducts of the partnership between Atty. Zepeda
and Manuel who, as a non-lawyer, was not authorized to practice law; (b) the
Agreement is void under Article 1491 (5) of the Civil Code of the Philippines which
prohibits lawyers from acquiring properties which are the objects of the litigation in
which they have taken part; (c) jointly designed to completely deprive respondents
of the subject parcels, the Agreement and the Kasunduan are invalid and
unconscionable; and (d) without prejudice to his liability for violation of the Canons
of Professional Responsibility, Atty. Zepeda can file an action to collect attorneys
fees based on quantum meruit.
ISSUE: Whether the agreement and kasunduan is void ab inititio for beign contrary
to law and public policy and for being violative of art. 1491 of the NCC and the canons
of professional responsibility.
RULING: Admittedly, Article 1491 (5) of the Civil Code prohibits lawyers from
acquiring by purchase or assignment the property or rights involved which are the
object of the litigation in which they intervene by virtue of their profession. The CA
lost sight of the fact, however, that the prohibition applies only during the pendency
of the suit and generally does not cover contracts for contingent fees where the
transfer takes effect only after the finality of a favorable judgment.
Although executed on the same day, it cannot likewise be gainsaid that the
Agreement and the Kasunduan are independent contracts, with parties, objects and
causes different from that of the other. Defined as a meeting of the minds between
two persons whereby one binds himself, with respect to the other to give something
or to render some service, a contract requires the concurrence of the following
requisites: (a) consent of the contracting parties; (b) object certain which is the
subject matter of the contract; and, (c) cause of the obligation which is established.
Executed in exchange for the legal services of Atty. Zepeda and the financial
assistance to be extended by Manuel, the Agreement concerned respondents
transfer of 40% of the avails of the suit, in the event of a favorable judgment in Civil
Case No. 8085. While concededly subject to the same suspensive condition, the
Kasunduan was, in contrast, concluded by respondents with Manuel alone, for the
purpose of selling in favor of the latter 60% of their share in the subject parcels for
the agreed price of P180,000.00. Given these clear distinctions, petitioners correctly
argue that the CA reversibly erred in not determining the validity of the Kasunduan
independent from that of the Agreement.
Viewed in the light of the autonomous nature of contracts enunciated under Article
1306 of the Civil Code, on the other hand, we find that the Kasunduan was correctly
5
found by the RTC to be a valid and binding contract between the parties. Already
partially executed with respondents receipt of P1,000.00 from Manuel upon the
execution thereof, the Kasunduan simply concerned the sale of the formers 60%
share in the subject parcel, less the 1,750-square meter portion to be retained, for
the agreed consideration of P180,000.00. As a notarized document that carries the
evidentiary weight conferred upon it with respect to its due execution, the
Kasunduan was shown to have been signed by respondents with full knowledge of
its contents, as may be gleaned from the testimonies elicited from Philip and
Leovina.
In the absence of any showing, however, that the parties were able to agree on new
stipulations that would modify their agreement, we find that petitioners and
respondents are bound by the original terms embodied in the Kasunduan.
Obligations arising from contracts, after all, have the force of law between the
contracting parties who are expected to abide in good faith with their contractual
commitments, not weasel out of them. Moreover, when the terms of the contract
are clear and leave no doubt as to the intention of the contracting parties, the rule
is settled that the literal meaning of its stipulations should govern. In such cases,
courts have no authority to alter a contract by construction or to make a new
contract for the parties. Since their duty is confined to the interpretation of the one
which the parties have made for themselves without regard to its wisdom or folly, it
has been ruled that courts cannot supply material stipulations or read into the
contract words it does not contain. Indeed, courts will not relieve a party from the
adverse effects of an unwise or unfavorable contract freely entered into
* Bugatti v. CA, 343 SCRA 335 (2000)
Riviera Filipina Inc. vs. CA
Facts:
Respondent Reyes executed a ten year renewable Contract of Lease with Riviera
involving a 1,018 square meter parcel of land which was a subject of a Real Estate
Mortgage executed by Reyes in favor of Prudential Bank. But the loan with Prudential
Bank remained unpaid upon maturity so the bank foreclosed the mortgage thereon
and emerged as the highest bidder at the public auction sale. Reyes decided to sell
the property offered it to Reviera. After seven months, Riviera offered to buy the
property but Reyes denied it and increased the price of the property. Reyes counsel
informed Riviera that he is selling the property for P6,000 per square meter and to
confirm their conversation, Riviera sent a letter stating his interest in buying the
property for the fixed and final price of P5,000 per square meters but Reyes did not
accede to said price.
Then Reyes confided to Traballo and the latter expressed interest in buying the said
property for P5,300 per square meter but he did not have enough amount so he
looked for a partner. Despite of the impending expiration of the redemption period
of the foreclosed mortgaged property and the deal between Reyes and Traballo was
not yet formally concluded, Reyes decided to approach Riviera and requested Atty.
Alinea to approach Angeles and find out if the latter was still interested in buying the
subject property and ask him to raise his offer for the purchase of the said property
a little higher but Riviera said that his offer is P5,000 per square meter so Reyes did
not agree.
Cypress and Trading Corporation, were able to come up with the amount sufficient
to cover the redemption money, with which Reyes paid to the Prudential Bank to
redeem the subject property and Reyes executed a Deed of Absolute Sale covering
the subject property. Cypress and Cornhill mortgaged the subject property to Urban
Development Bank. Riviera sought from Reyes, Cypress and Cornhill a resale of the
subject property to it claiming that its right of first refusal under the lease contract
was violated but his attempts were unsuccessful. Riviera filed the suit to compel
Reyes, Cypress, Cornhill and Urban Development Bank to transfer the disputed title
to the land in favor of Riviera upon its payment of the price paid by Cypress and
Cornhill.
Issue:
Whether or not petitioner can still exercise his right of first refusal.
Held:
No. The held that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the price for
which they were finally sold to a third person should have likewise been first offered
to the former. Further, there should be identity of terms and conditions to be offered
to the buyer holding a right of first refusal if such right is not to be rendered illusory.
Lastly, the basis of the right of first refusal must be the current offer to sell of the
seller or offer to purchase of any prospective buyer. Thus, the prevailing doctrine 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.
Malbarosa v CA (2003)
G.R. No. 125761
FACTS: Here in petitioner was the president and general manager of Philtectic Corp.,
a subsidiary of respondent SEADC. Being an officer, he was issued a car and
6
membership in the Architectural Center. One day he intimidated with the vice-
chairman of the BoD of respondent his desire to retire and he requested that his
incentive compensation be paid to him as president of Philtectic. He then tendered
his resignation to said VP. One of the officer met with petitioner and informed him
that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer to petitioner stating therein
acceptance of petitioners resignation and advised him that he is entitled to P251k
as his incentive compensation. In the same letter, the VP proposed the satisfaction
of his incentive by giving him the car the company issued and the membership in the
Architectural Center will be transferred to him, instead of cash. Petitioner was
required by respondent through the VP to affix his signature in the letter if he was
agreeable to the proposal. The letter was given to the petitioner by the officer who
told him that he was supposed to get P395k.Petitioner was dismayed when he
received the letter-offer and refused to sign it as required by respondent if he was
agreeable to it.
Two weeks later, respondent company demanded the return the car and turn over
the membership in the Architectural Center. Petitioner wrote the counsel of
respondent telling him that he cannot comply with the demand since he already
accepted the offer fourteen (14) days after it was made. In his letter, he enclosed a
Xerox of the original with his affixed signature as required.
With his refusal, respondent instituted an action for recovery with replevin. In his
Answer to the complaint, the petitioner, as defendant therein, alleged that he had
already agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the
respondent, the plaintiff therein, and had notified the said plaintiff of his acceptance;
hence, he had the right to the possession of the car.
After the trial, judgment was rendered against petitioner. The trial court opined that
there existed no perfected contract between the petitioner and the respondent on
the latters 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. He appealed to the CA which affirmed the decision of the trial
court. Hence, this present appeal.
ISSUES:
Whether or not there was a valid acceptance on his part of the March 14,
1990 Letter-offer of the respondent?
Whether or not there was an effective withdrawal by the respondent of
said letter-offer?
HELD: No. 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. 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
acceptance of an offer must be made known to the offeror. 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. If an offeror prescribes the exclusive manner in
which acceptance of his offer shall be indicated by the offeree, an acceptance of the
offer in the manner prescribed will bind the offeror. On the other hand, an attempt
on the part of the offeree to accept the offer in a different manner does not bind the
offeror as the absence of the meeting of the minds on the altered type of
acceptance.
An offer made inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected
only upon knowledge by the offeror of the express acceptance by the offeree of the
offer. An acceptance which is not made in the manner prescribed by the offeror is
not effective but constitutes a counter-offer which the offeror may accept or reject.
The contract is not perfected if the offeror revokes or withdraws its offer and the
revocation or withdrawal of the offeror is the first to reach the offeree.
In the case at bar, the respondent made its offer through its VP. On March 16, the
officer handed over the original letter-offer to petitioner. The respondent required
the petitioner to accept by affixing his signature and the date in the letter offer, thus
foreclosing an implied acceptance or any other mode of acceptance. And it is for a
fact that the petitioner did not accept or reject the offer for he needed time to decide
whether to accept or reject. 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
respondents letter dated April 4, 1990 which was delivered to the petitioner on the
7
same day. Indubitably, there was no contract perfected by the parties on the March
14, 1990 Letter-offer of the respondent.
On the second issue. It is necessarily so because there was no need for the
respondent to withdraw its offer because the petitioner had already rejected the
respondents offer on March 16, 1990 when the petitioner received the original of
the March 14, 1990 Letter-offer of the respondent without the petitioner affixing his
signature on the space therefor.
Capalla v Comelec (2012)
Re: Autonomy of Will
Peralta, J (CJ Sereno concurs)
DOCTRINE The subsequent contract in question is not an extension of the previous
AES Contract, but a new one. And not being an ordinary contract but a procurement
by the government, RA 9184 or the Government Procurement Reform Act applies.
Section 10 of said law requires for the validity of every government procurement that
competitive bidding be conducted. However, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the opportunity to bid
on the same terms.
FACTS: On July 10, 2009, the Comelec and Smartmatic-TIM entered into a Contract
for the Provision of an Automated Election System for the May 10, 2010
Synchronized National and Local Elections,(AES Contract). The contract between the
Comelec and Smartmatic-TIM was one of lease of the AES with option to purchase
(OTP) the goods listed in the contract. In said contract, the Comelec was given until
December 31, 2010 within which to exercise the option. In September 2010, the
Comelec partially exercised its OTP 920 units of PCOS machines with corresponding
canvassing/consolidation system (CCS) for the special elections in certain areas in
the provinces of Basilan, Lanao del Sur and Bulacan. In a letter dated December 18,
2010, Smartmatic-TIM, through its Chairman Flores, proposed a temporary
extension of the option period on the remaining PCOS machines until March 31,
2011, waiving the storage costs and covering the maintenance costs. The Comelec
did not exercise the option within the extended period. Several extensions were
given for the Comelec to exercise the OTP until its final extension on March 31, 2012.
On March 29, 2012, the Comelec issued a Resolution resolving to accept Smartmatic-
TIMs offer to extend the period to exercise the OTP until March 31, 2012 and to
authorize Chairman Brillantes to sign for and on behalf of the Comelec the
Agreement on the Extension of the OTP Under the AES Contract (Extension
Agreement). Comelec again issued a Resolution resolving to approve the Deed of
Sale between the Comelec and Smartmatic-TIM to purchase the latters PCOS
machines to be used in the upcoming May 2013 elections and to authorize Chairman
Brillantes to sign the Deed of Sale for and on behalf of the Comelec. The Deed of Sale
was forthwith executed.
Petitioners assail the constitutionality of the Comelec Resolutions on the grounds
that the option period provided for in the AES contract had already lapsed; that the
extension of the option period and the exercise of the option without competitive
public bidding contravene the provisions of RA 9184; and that the Comelec
purchased the machines in contravention of the standards laid down in RA 9369. On
the other hand, respondents argue on the validity of the subject transaction based
on the grounds that there is no prohibition either in the contract or provision of law
for it to extend the option period; that the OTP is not an independent contract in
itself, but is a provision contained in the valid and existing AES contract that had
already satisfied the public bidding requirements of RA 9184; and that exercising the
option was the most advantageous option of the Comelec.
ISSUE: Whether the extension of OTP is an independent contract itself, thus must
go through public bidding.
HELD: No public bidding necessary.
Clearly, under the AES Contract, the Comelec was given until December 31, 2010
within which to exercise the OTP the subject goods listed therein including the PCOS
machines. The option was, however, not exercised within said period. But the parties
later entered into an extension agreement giving the Comelec until March 31, 2012
within which to exercise it. With the extension of the period, the Comelec validly
exercised the option and eventually entered into a contract of sale of the subject
goods. The extension of the option period, the subsequent exercise thereof, and the
eventual execution of the Deed of Sale became the subjects of the petitions
challenging their validity in light of the contractual stipulations of respondents and
the provisions of RA 9184.
In our June 13, 2012 Decision, we decided in favor of respondents and placed a
stamp of validity on the assailed resolutions and transactions entered into. Based on
the AES Contract, we sustained the parties right to amend the same by extending
8
the option period. Considering that the performance security had not been released
to Smartmatic-TIM, the contract was still effective which can still be amended by the
mutual agreement of the parties, such amendment being reduced in writing. To be
sure, the option contract is embodied in the AES Contract whereby the Comelec was
given the right to decide whether or not to buy the subject goods listed therein under
the terms and conditions also agreed upon by the parties. As we simply held in the
assailed decision:
While the contract indeed specifically required the Comelec to notify Smartmatic-
TIM of its OTP the subject goods until December 31, 2010, a reading of the other
provisions of the AES contract would show that the parties are given the right to
amend the contract which may include the period within which to exercise the
option. There is, likewise, no prohibition on the extension of the period, provided
that the contract is still effective.
The Comelec still retains P50M of the amount due Smartmatic-TIM as performance
security, which indicates that the AES contract is still effective and not yet
terminated. Consequently, pursuant to Article 19 of the contract, the provisions
thereof may still be amended by mutual agreement of the parties provided said
amendment is in writing and signed by the parties. Considering, however, that the
AES contract is not an ordinary contract as it involves procurement by a
government agency, the rights and obligations of the parties are governed not only
by the Civil Code but also by RA 9184. A winning bidder is not precluded from
modifying or amending certain provisions of the contract bidded upon. However,
such changes must not constitute substantial or material amendments that would
alter the basic parameters of the contract and would constitute a denial to the other
bidders of the opportunity to bid on the same terms.
The conclusions held by the Court in Power Sector Assets and Liabilities Management
Corporation (PSALM) v. Pozzolanic Philippines Incorporated and Agan, Jr. v.
Philippine International Air Terminals Co., Inc., (PIATCO) cannot be applied in the
present case. First, Smartmatic-TIM was not granted additional right that was not
previously available to the other bidders. The bidders were apprised that aside from
the lease of goods and purchase of services, their proposals should include an OTP
the subject goods. Second, the amendment of the AES contract is not substantial.
The approved budget for the contract was P11,223,618,400.00 charged against the
supplemental appropriations for election modernization. Bids were, therefore,
accepted provided that they did not exceed said amount. The competitive public
bidding conducted for the AES contract was sufficient. A new public bidding would
be a superfluity. Lastly, the amendment of the AES contract is more advantageous
to the Comelec and the public because the P7,191,484,739.48 rentals paid for the
lease of goods and purchase of services under the AES contract was considered part
of the purchase price. For the Comelec to own the subject goods, it was required to
pay only P2,130,635,048.15. If the Comelec did not exercise the option, the rentals
already paid would just be one of the government expenses for the past election and
would be of no use to future elections.
* Heirs of Severina San Miguel v. CA, 364 SCRA 523
MANILA PRINCE HOTEL VS. GSIS Case Digest
MANILA PRINCE HOTEL VS. GSIS [267 SCRA 408; G.R. No. 122156; 3 Feb 1997]
Facts: The controversy arose when respondent Government Service
InsuranceSystem (GSIS), pursuant to the privatization program of
the Philippine Government under Proclamation No. 50 dated 8 December 1986,
decided to sell through public bidding 30% to 51% of the issued and outstanding
shares of respondent Manila HotelCorporation. In a close bidding held on 18
September 1995 only two (2) bidders participated: petitioner Manila Prince
Hotel Corporation, a Filipino corporation, which offered to buy 51% of the MHC or
15,300,000 shares at P41.58 per share, and Renong Berhad, a Malaysian firm, with
ITT-Sheraton as its hotel operator, which bid for the same number of shares at
P44.00 per share, or P2.42 more than the bid of petitioner.
Pending the declaration of Renong Berhad as the winning bidder/strategic partner
and the execution of the necessary contracts, matched the bid price of P44.00 per
share tendered by Renong Berhad.
On 17 October 1995, perhaps apprehensive that respondent GSIS has disregarded
the tender of the matching bid and that the sale of 51% of the MHC may be hastened
by respondent GSIS and consummated with Renong Berhad, petitioner came to this
Court on prohibition and mandamus.
In the main, petitioner invokes Sec. 10, second par., Art. XII, of the
1987 Constitutionand submits that the Manila Hotel has been identified with the
Filipino nation and has practically become a historical monument which reflects the
vibrancy of Philippine heritage and culture. It is a proud legacy of an earlier
generation of Filipinos who believed in the nobility and sacredness of independence
and its power and capacity to release the full potential of the Filipino people. To all
intents and purposes, it has become a part of the national patrimony. 6 Petitioner
also argues that since 51% of the shares of the MHC carries with it the ownership of
the business of the hotel which is owned by respondent GSIS, a government-owned
and controlled corporation, the hotel business of respondent GSIS being a part of
9
the tourism industry is unquestionably a part of the national economy.
Issue: Whether or Not the sale of Manila Hotel to Renong Berhad is violative of the
Constitutional provision of Filipino First policy and is therefore null and void.
Held: The Manila Hotel or, for that matter, 51% of the MHC, is not just any
commodity to be sold to the highest bidder solely for the sake of privatization. The
Manila Hotel has played and continues to play a significant role as an authentic
repository of twentieth century Philippine history and culture. This is the plain and
simple meaning of the Filipino First Policy provision of the Philippine Constitution.
And this Court, heeding the clarion call of the Constitution and accepting the duty of
being the elderly watchman of the nation, will continue to respect and protect the
sanctity of the Constitution. It was thus ordered that GSIS accepts the matching bid
of petitioner MANILA PRINCE HOTEL CORPORATION to purchase the subject 51% of
the shares of the Manila Hotel Corporation at P44.00 per share and thereafter to
execute the necessary clearances and to do such other acts and deeds as may be
necessary for purpose.
The Supreme Court directed the GSIS and other respondents to cease and desist
from selling the 51% shares of the MHC to the Malaysian firm Renong Berhad, and
instead to accept the matching bid of the petitioner Manila Prince Hotel.
According to Justice Bellosillo, ponente of the case at bar, Section 10, second
paragraph, Article 11 of the 1987 Constitution is a mandatory provision, a positive
command which is complete in itself and needs no further guidelines or
implementing laws to enforce it. The Court En Banc emphasized that qualified
Filipinos shall be preferred over foreigners, as mandated by the provision in
question.
The Manila Hotel had long been a landmark, therefore, making the 51% of the equity
of said hotel to fall within the purview of the constitutional shelter for it emprises
the majority and controlling stock. The Court also reiterated how much of national
pride will vanish if the nations cultural heritage will fall on the hands of foreigners.
In his dissenting opinion, Justice Puno said that the provision in question should be
interpreted as pro-Filipino and, at the same time, not anti-alien in itself because it
does not prohibit the State from granting rights, privileges and concessions to
foreigners in the absence of qualified Filipinos. He also argued that the petitioner is
estopped from assailing the winning bid of Renong Berhad because the former knew
the rules of the bidding and that the foreigners are qualified, too.
Benito delos Reyes, plaintiff-appellant.
vs.
Veronica Alojado, defendant-appellee.
En Banc Case
FACTS OF THE CASE:
On or about Janaury 22, 1905, Veronica Alojado obtained a loan
from Benito delos Reyes the sum of 67.60 for the purpose of paying her
debt from Olympia Zaballa. It was agreed that Alojado should remain as a
servant in the house of delos Reyes to serve without remuneration until
such time that she can find someone who can loan the said amount,
freeing her from her obligation to delos Reyes but repeating/incurring the
same obligation.
On March 12, 1906, Alojado left without paying her debt and
despite demands, failed to pay her loan compelling delos Reyes to file a
suit at the Court of Justice of the Peace of Sta. Rosa, Laguna on March 15,
1906 to recover the sum or to compel her to return to his service. On April
14, 1906, the judgment was rendered by the court against Alojado for her
to pay the sum to delos Reyes and if insolvent, fulfill her agreement with
costs assessed against her.
Defendant filed an appeal with the Court of First Instance, the
plaintiff on May 4, 1906 filed a Motion to Disallow the Appeals with cost
against her alleging that it was filed out of time. Delos Reyes also averred
that Alojado also obtained several small amounts from him amounting to
the total amount of 11.97 that remained unpaid and asked the court for
judgment to comply with the contract and to pay him the sum of 79.57
and that until paid, Alojado should remain gratuitously in the service of his
household plus the cost of the trial.
Alojado answere stressing that she left because delos Reyes did
not pay her for the services she has rendered and that the items she
purchased amounting to 11.97 are still in the possession of delos Reyes
because he refuses to deliver them.
The Court of First Instance absolved Alojado computing the
wages due her to 82 less her indebtedness. The difference shall be paid
10
by delos Reyes to Alojado in the amount of 2.43, hence, delos Reyes filed deem convenient, provided they are not contrary to law, moral, good
before the Supreme Court an appeal through bill of exceptions, alleging customs, public order, or public policy.
that the CFIs judgment was manifestly contrary to the weight of evidence.

* Gabriel v. Monte de Piedad

ISSUE:
GARCIA v. LEGARDA
1. Whether or not the Court of First Instance erred in ruling that the
grace period already given, still unable to pay, puts the blame on other party
condition is contrary to law and morality under Article 1255 (Article
Mutuality of Contract
1306, NCC) in relation to the provisions on hiring domestic servies
DOCTRINE:
under Article 1583, 1584 and 1585 of the Civil Code.
Stipulations allowing a party to cancel or rescind do not militate against the
mutuality of contracts
RULING:
- when the contract expressly provides that one of the contracting parties is
authorized to cancel the same contract, the agreement is just being fulfilled.
FACTS:
No. The duty to pay the said sum as well as that of 11.97 delivered to the - Petitioner Garcia is engaged in 3 contracts with respondent to purchase 3
defendant in small amounts during the time that she was in the plaintiffs parcels of land (150 square meters each) payable through installment.
house, is unquestionable, inasmuch as it is a positive debt demandable of
- Respondent Rita Legarda Inc. cancelled the 3 contracts.
the defendant by her creditor. (Arts. 1754, 1170 Civil Code). However, the
reason alleged by the plaintiff as a basis for the loan is untenable, to wit, - Petitioners instituted a civil case against the respondent to have the 3
that the defendant was obliged to render service in his house as a servant contracts declared as existing and subsisting
without remuneration whatever and to remain therein so long as she had - According to respondent, petitioners werent able to pay all of the
not paid her debt, inasmuch as this condition is contrary to law and installments under the 3 contracts which is why respondent cancelled the
morality. (Art. 1255, Civil Code). contract.
- Petitioners denied they were indebted to the 3 contracts which is why
Domestic services are always to be remunerated, and no they wished to have the 3 contracts declared as still subsisting.
agreement may subsist is law in which it is stipulated that any domestic - Petitioners said that the respondents cancellation of the 3 contracts was
service shall be absolutely gratuitous, unless it be admitted htat slavery
in violation of Art. 1308:
may be established in this country through a covenant entered into
between the interested parties. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Articles 1583, 1584 and 1585 of the Civil Code prescribe rules - Respondents contention: the reason for their cancelling of the 3
governing the hiring of domestic servants, the conditions of such hire, the contracts was because there was a stipulation in the contracts that gives
term during which the service may be rendered and the wages that accrue the petitioner a certain 1 month grace period in case the petitioner
to the servant, also the duties of the latter and the master. wouldnt be able to pay the installments in due time. If the petitioner is
still unable to pay after the 1 month grace period, an additional period of
Article 1306 (1255) of the Civil Code reads: The contracting parties may 90 days is given. If the petitioner is still unable to pay after the lapse of
establish such stipulations, clauses, terms and conditions as they may the grace period and the additional 90 days, the respondent has the right

11
 to declare the contract cancelled (said stipulation is found under
Paragraph 6 of the contract just in case Mison asks)
ISSUE:
Was the stipulation (Paragraph 6 of the contracts wherein the respondents
contention relied upon) violative of Art. 1308 of the NCC? NO
RATIO:
Art. 1308: The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
The above provisions ultimate purpose is to render void a contract
containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties.
The stipulation in question merely gives the vendor the right to declare
the contract cancelled.
It does not leave the validity or compliance of the contract entirely "to
the will of one of the contracting parties"
The stipulation or agreement simply says that in case of default in the
payment of installments by the vendee, he shall have (1) "a month of
grace", and that (2) should said month of grace expire without the
vendee paying his arrears, he shall have another "period of 90 days" to
pay "all the amounts he should have paid", etc., then the vendor "has the
right to declare this contract cancelled and of no effect."
A contract expressly giving to one party the right to cancel, if a
resolutory condition therein agreed upon is not fulfilled, is still valid
because when the contract is cancelled, the agreement of the parties is
actually being fulfilled.
Jurisprudence also says that a contract with a resolutory condition (as in
this case) that expressly gives one party the right to cancel once said
condition is not fulfilled is still valid. The party upon exercising their right
to cancel the contract was just fulfilling its part of the contract therefore
there was actually a fulfillment in the agreement stipulated in their
contract which the parties both consented to. (Taylor vs. Ky Tieng Po)
In the case at bar, when respondent Rita Legarda Inc. cancelled the
contract, it was merely fulfilling its part of the agreement. It was the
petitioners that did not do their part of the bargain being unable to pay
the installments on due time.
Moral of the case: Kung anong nasa kontrata, sundin. May grace period
na nga e...ayan, na hasslebeans pa sa pag file ng kaso.
PNB v Manalo
Mutuality
Doctrine: Any stipulation on interest unilaterally imposed and increased by Banks
shall be struck down as violative of the principle of mutuality of contracts.
FACTS: Respondent Spouses Enrique Manalo and Rosalinda Jacinto applied for an
All-Purpose Credit Facility in the amount of P1,000,000 with PNB. After PNB granted
their application, they executed a REM in favor of PNB over their property as security
for the loan. The credit facility was renewed and increased several times over the
years. It was agreed upon that the Spouses would make monthly payments on the
interest. After the Spouses failed to settle their unpaid account despite demands,
PNB foreclosed the mortgage.
The Spouses Manalo instituted this action for the nullification of the foreclosure
proceedings. RTC ruled in favor of PNB. It that the Spouses Manalos "contract of
adhesion" argument was unfounded because they had still accepted the terms and
conditions of their credit agreement with PNB and had exerted efforts to pay their
obligation; that the Spouses Manalo were now estopped from questioning the
interest rates unilaterally imposed by PNB because they had paid at those rates for
three years without protest; and that their allegation about PNB violating the notice
and publication requirements during the foreclosure proceedings was untenable
because personal notice to the mortgagee was not required under Act No. 3135.
CA held that PNB could not unilaterally increase the rate of interest considering that
the credit agreements specifically provided that prior notice was required before an
increase in interest rate could be effected. It found that PNB did not adduce proof
showing that the Spouses Manalo had been notified before the increased interest
rates were imposed; and that PNBs unilateral imposition of the increased interest
rate was null and void for being violative of the principle of mutuality of contracts
enshrined in Article 1308. Reinforcing its "contract of adhesion" conclusion, it added
that the Spouses Manalos being in dire need of money rendered them to be not on
an equal footing with PNB. Consequently, the CA, relying on Eastern Shipping Lines
v. CA, fixed the interest rate to be paid by the Spouses Manalo at 12% per annum,
computed from their default.
12
ISSUE: Whether there was mutuality of consent in the imposition of interest rates
on the respondent spouses loan.
HELD: No. The credit agreement executed succinctly stipulated that the loan would
be subjected to interest at a rate "determined by the Bank to be its prime rate plus
applicable spread, prevailing at the current month." This stipulation was carried over
to or adopted by the subsequent renewals of the credit agreement. PNB thereby
arrogated unto itself the sole prerogative to determine and increase the interest
rates imposed on the Spouses Manalo. Such a unilateral determination of the
interest rates contravened the principle of mutuality of contracts embodied in Article
1308.
A contract where there is no mutuality between the parties partakes of the nature
of a contract of adhesion, and any obscurity will be construed against the party who
prepared the contract, the latter being presumed the stronger party to the
agreement, and who caused the obscurity. PNB should then suffer the consequences
of its failure to specifically indicate the rates of interest in the credit agreement. In
Philippine Savings Bank v. Castillo: The unilateral determination and imposition of
the increased rates is violative of the principle of mutuality of contracts under Article
1308 xxx Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result, thus partaking of the nature of a
contract of adhesion, is void. Any stipulation regarding the validity or compliance of
the contract left solely to the will of one of the parties is likewise invalid.
PNB could not also justify the increases it had effected on the interest rates by citing
the fact that the Spouses Manalo had paid the interests without protest, and had
renewed the loan several times. A borrower is not estopped from assailing the
unilateral increase in the interest made by the lender since no one who receives a
proposal to change a contract, to which he is a party, is obliged to answer the same
and said partys silence cannot be construed as an acceptance thereof.
Lastly, the credit agreements had explicitly provided that prior notice would be
necessary before PNB could increase the interest rates. In failing to notify the
Spouses Manalo before imposing the increased rates of interest, therefore, PNB
violated the stipulations of the very contract that it had prepared. Hence, the varying
interest rates imposed by PNB have to be vacated and declared null and void, and in
their place an interest rate of 12% per annum computed from their default is fixed
pursuant to the ruling in Eastern Shipping Lines, Inc. v. CA.
Silos v PNB (2014)
G.R. No. 181045, July 2, 2014
Topic: Mutuality
DOCTRINE: Contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet 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 always a vital component,
for it can make or break a capital venture. Thus, any change must be mutually agreed
upon, otherwise, it is bereft of any binding effect.
FACTS: Spouses Eduardo and Lydia Silos (petitioners) have been in business for about
two decades of operating a department store and buying and selling of ready-to-
wear apparel. To secure a one-year revolving credit line of P150,000.00 obtained
from PNB, petitioners constituted in August 1987 a Real Estate Mortgage over a lot
in Kalibo, Aklan.
In July 1988, the credit line was increased to P1.8 million and the mortgage was
correspondingly increased to P1.8 million. And in July 1989, a Supplement to the
Existing Real Estate Mortgage was executed to cover the same credit line, which was
increased to P2.5 million, and additional security was given. Petitioners issued eight
Promissory Notes and signed a Credit Agreement.
There are interest stipulations as follows:
a. The Borrower agrees that the Bank may modify the interest rate in
the Loan depending on whatever policy the Bank may adopt in the
future
b. the Borrower hereby agrees that the Bank may, without need of
notice to the Borrower, increase or decrease its spread over the
floating interest rate at any time depending on whatever policy it may
adopt in the future.
The petitioners religiously paid the loans. The interest varied because of
the stipulation. In August 1991, an Amendment to the Credit Agreement was
executed by the parties, with the following stipulation regarding interest:
c. Interest on Line Availments. (a) The Borrowers agree to pay interest
on each Availment from date of each Availment up to but not
including the date of full payment thereof at the rate per annum
13
 which is determined by the Bank to be prime rate plus applicable
spread in effect as of the date of each Availment.15 (Emphases
supplied)
Under this Amendment to Credit Agreement, petitioners issued in favor of
PNB the following 18 Promissory Notes.
The 9th up to the 17th promissory notes provide for the payment of
interest at the rate the Bank may at any time without notice, raise within the limits
allowed by law. On the other hand, the 18th up to the 26th promissory notes
including PN 9707237, which is the 26th promissory note carried the following
provision:
d. x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent Interest
Periods, with prior notice to the Borrower in the event of changes in
interest rate prescribed by law or the Monetary Board of the Central
Bank of the Philippines, or in the Banks overall cost of funds. I/We
hereby agree that in the event I/we are not agreeable to the interest
rate fixed for any Interest Period, I/we shall have the option to prepay
the loan or credit facility without penalty within ten (10) calendar
days from the Interest Setting Date
In 1997, petitioners faltered when the interest rates soared due to the
Asian financial crisis. Petitioners sole outstanding promissory note for P2.5 million
PN 9707237 executed in July 1997 and due 120 days later or on October 28, 1997
became past due, and despite repeated demands, petitioners failed to make good
on the note. PNB foreclosed on the mortgage because of the non-payment.
More than a year later, or on March 24, 2000, petitioners filed Civil Case
No. 5975, seeking annulment of the foreclosure sale and an accounting of the PNB
credit.
Trial court dismissed the civil case.
The CA modified the decision on interest rate and attorneys fees, but the
still affirmed the trial court decision.
ISSUE: Whether Credit Agreement entered into by the parties is valid
HELD: No, P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the interest rate
that shall accrue on a loan or forbearance of money, goods or credits. In fine, they
can agree to adjust, upward or downward, the interest previously stipulated.
However, contrary to the stubborn insistence of petitioner bank, the said law and
circular did not authorize either party to unilaterally raise the interest rate without
the others consent. 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 the parties. If this
assent is wanting on the part of the one who contracts, his act has no more efficacy
than if it had been done under duress or by a person of unsound mind. Similarly,
contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet 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 always a vital component, for it can
make or break a capital venture. Thus, any change must be mutually agreed upon,
otherwise, it is bereft of any binding effect.
We cannot countenance petitioner banks posturing that the escalation
clause at bench gives it unbridled right to unilaterally upwardly adjust the interest
on private respondents loan. That would completely take away from private
respondents the right to assent to an important modification in their agreement, and
would negate the element of mutuality in contracts. In Philippine National Bank v.
Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held x x x The unilateral
action of the PNB in increasing the interest rate on the private respondents loan
violated the mutuality of contracts ordained in Article 1308 of the Civil Code
DKC Holdings v. CA
G.R. No. 118248. April 5, 2000
On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into a
Contract of Lease with Option to Buy with Encarnacion Bartolome, decedent herein,
whereby petitioner was given the option to lease or lease with purchase the subject
land.
Encarnacion died. Thereafter, petitioner coursed its payment to private respondent
Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to
accept these payments. On March 14, 1990, petitioner served upon Victor,
via registered mail, notice that it was exercising its option to lease the property,
tendering the amount of P15,000.00 as rent. Again, Victor refused to accept the
tendered rental fee and to surrender possession of the property to petitioner. On
April 23, 1990, petitioner filed a complaint for specific performance and damages
against Victor and the Register of Deeds
14
ISSUE: Whether or not the rights under a Contact of Lease with Option to Buy were
transmissible.
YES. 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
of law. The Court held that there is neither contractual stipulation nor legal provision
making the rights and obligations under the lease contract intransmissible. More
importantly, the nature of the rights and obligations therein are, by their nature,
transmissible.
In the case at bar, the subject matter of the contract is a lease, which is a property
right. 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. Similarly, nonperformance is not excused
by the death of the party when the other party has a property interest in the subject
matter of the contract.
Therefore, Victor is bound by the subject Contract of Lease with Option to Buy.
* Direct Funders Corp. v. Lavina
PNB v. Dee, Et Al. (2014)
Topic: Characteristics of Contracts; Relativity
DOCTRINE: The basic principle of relativity of contracts is that contracts can only bind
the parties who entered into it, and cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge thereof Where there is
no privity of contract, there is likewise no obligation or liability to speak about.
FACTS: Sometime in July 1994, respondent Teresita Tan Dee bought from
respondent Prime East Properties Inc. (PEPI) on an installment basis a residential lot
located in Binangonan, Rizal. Subsequently, PEPI assigned its rights over its property
on August 1996 to respondent AFPRSBS, which included the property purchased by
Dee.
Thereafter, PEPI obtained a P205,000,000.00 loan from petitioner PNB, secured by a
mortgage over several properties, including Dees property. The mortgage was
cleared by the HLURB on September 18, 1996.
After Dees full payment of the purchase price, a deed of sale was executed by
respondents PEPI and AFPRSBS on July 1998 in Dees favor. Consequently, Dee
sought from the petitioner the delivery of the owners duplicate title over the
property, to no avail. Thus, she filed with the HLURB a complaint for specific
performance to compel delivery of TCT by the petitioner, PEPI and AFPRSBS, among
others.
PNBs Contention
The petitioner claims that it has a valid mortgage over Dees property, which was
part of the property mortgaged by PEPI to it to secure its loan obligation, and that
Dee and PEPI are bound by such mortgage. The petitioner also argues that it is not
privy to the transactions between the subdivision project buyers and PEPI, and has
no obligation to perform any of their respective undertakings under their contract.
HLURB: Ruled in favor of Dee directing PNB to cancel/release the mortgage
and surrender/release the title to Dee. Ordering also PEPI and AFB-RSBS to deliver
the title of the subject lit in the name of Dee free from all liens and encumberances.
Board of Commissioners: AFFIRMED HLURB.
Office of the President: AFFIRMED Board of Commissioners.
CA: AFFIRMED Office of the President
ISSUE: WON PNB is privy to the contract between respondent Dee and PEPI.
HELD: NO.
The petitioner is correct in arguing that it is not obliged to perform any of the
undertaking of respondent PEPI and AFPRSBS in its transactions with Dee because
it is not a privy thereto. The basic principle of relativity of contracts is that contracts
can only bind the parties who entered into it, and cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge thereof.
Where there is no privity of contract, there is likewise no obligation or liability to
speak about.
The petitioner, however, is not being tasked to undertake the obligations of PEPI and
AFPRSBS. In this case, there are two phases involved in the transactions between
respondents PEPI and Dee the first phase is the contract to sell, which eventually
became the second phase, the absolute sale, after Dees full payment of the
15
purchase price. In a contract of sale, the parties obligations are plain and simple.
The law obliges the vendor to transfer the ownership of and to deliver the thing that
is the object of sale.
On the other hand, the principal obligation of a vendee is to pay the full purchase
price at the agreed time. Based on the final contract of sale between them, the
obligation of PEPI, as owners and vendors of Lot 12, Block 21A, Village East
Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21A
to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the
property. There is nothing in the decision of the HLURB, as affirmed by the OP and
the CA, which shows that the petitioner is being ordered to assume the obligation of
any of the respondents. There is also nothing in the HLURB decision, which validates
the petitioners claim that the mortgage has been nullified. The order of
cancellation/release of the mortgage is simply a consequence of Dees full payment
of the purchase price, as mandated by Section 25 of P.D. No. 957.
It must be stressed that the mortgage contract between PEPI and the petitioner is
merely an accessory contract to the principal threeyear loan takeout from the
petitioner by PEPI for its expansion project. It need not be belaboured that a
mortgage is an accessory undertaking to secure the fulfillment of a principal
obligation, and it does not affect the ownership of the property as it is nothing more
than a lien thereon serving as security for a debt.
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing
contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was
yet to fully pay the purchase price of the property. On this point, PEPI was acting
fully well within its right when it mortgaged the property to the petitioner, for in a
contract to sell, ownership is retained by the seller and is not to pass until full
payment of the purchase price.30 In other words, at the time of the mortgage, PEPI
was still the owner of the property.
Nevertheless, despite the apparent validity of the mortgage between the petitioner
and PEPI, the former is still bound to respect the transactions between respondents
PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI
were also the subject of existing contracts to sell with other buyers. While it may be
that the petitioner is protected by Act No. 3135, as amended, it cannot claim any
superior right as against the installment buyers. This is because the contract between
the respondents is protected by P.D. No. 957, a social justice measure enacted
primarily to protect innocent lot buyers.
* MBTC vs. Chiok
G.R. No. 209370, March 25, 2015
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. VALENTIN L.
FONG, Respondent.
Facts:
Fort Bonifacio Development Corporation (FBDC) and MS Maxco Company
Inc., entered into a Trade Contract for the execution of the structural and partial
architectural works on one of its projects in Taguig City; under the contract the FBDC
had the option to hire other contractors to rectify errors committed by MS Maxco
by reason of its negligence, omission, act, or default. It was also prohibited from
assigning or transferring any of its rights, obligations or liabilities without the express
consent of FBDC. For failure of MS Maxco comply with the Trade Contract, FBDC had
to hire other contractors and perform corrective works which eventually cost FBDC
P11,567,779.12. In April, 2005, FBDC received a letter dated April 18, 2005 from the
counsel of one Valentin Fong, informing it that MS Maxco had already assigned its
receivables from FBDC to him (Valentin), thru a Deed of Assignment, particularly the
amount of P1,577,115.90, to be taken from the retention money with the
FBDC. Replying, FBDC acknowledged the 5% retention money of MS Maxco but
asserted that the same was not yet due and demandable and the subject of
garnishment by MS Maxcos creditors. Despite repeated requests, FBDC refused to
release the retention money. In a letter dated January 31, 2006, FBDC informed
Fong that nothing was left of MS Maxcos retention money after the rectification of
the defects in the projects.
Valentin then filed a complaint against FBDC to collect the P1, 577, 115.90
before the RTC. In its defense, FBDC alleged that MS Maxco incurred delays in the
performance of its obligations under the Trade Agreement, constraining FBDC to hire
other contractors to rectify its works, which cost was deducted from the retention
money; the retention money was already depleted, hence FBDC was not liable to pay
it to Fong; FBDC was not bound under the Deed of Assignment between Fong and
MS Maxco, not being a party thereto. Fong being a mere assignee, was bound to
observe the terms of the Trade contract of MS Maxco with FBDC.
After trial, the RTC ruled in favour of Fong. It held that the case was one
of assignment of credit under Article 1624 of the Civil Code, hence, did not require
FBDCs consent as debtor for its validity and enforceability. What the law requires is
not the consent of the debtor, but merely notice to him, as the assignment takes
effect only from the time of his knowledge thereof. Also, Fong could not be adversely
affected by the garnishment of Maxcos retention money, as he had become the
owner of the receivables to the extent of the amount indicated in the Deed of
Assignment. When Maxco assigned the amount to Fong, he effectively became the
owner of the said amount, especially since the garnishment of the retention money
16
came after FBDC was informed of the Deed of Assignment. Also, Fong is not bound
by the stipulation prohibiting Maxco from assigning its obligations and credits under
the Trade Contract since he did not become automatically a party to it by the mere
expedient of entering into a Deed of Assigment with Maxco.
The Court of Appeals affirmed the RTC decision, hence FBDC elevated its
case to the Supreme Court.
Issue:
Whether or not FBDC was bound by the Deed of Assignment between Fong and MS
Maxco;
Whether or not it was liable to pay the amount under the Deed of Assignment.
Ruling:
The petition is meritorious.
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. 1 As such, the
stipulations in contracts are binding on them unless the contract is contrary to law,
morals, good customs, public order or public policy.2
The same principle on obligatory force applies by extension to the
contracting partys assignees, in turn, by virtue of the principle of relativity of
contracts which is fleshed out in Article 1311 of the Civil Code, viz.:
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.
x x x x (Emphasis supplied)
The reason that a contracting partys assignees, although seemingly a third
party to the transaction, remain bound by the original partys transaction under the
relativity principle further lies in the concept of subrogation, which inheres in
assignment.
Case law states that when a person assigns his credit to another person,
the latter is deemed subrogated to the rights as well as to the obligations of the
former.3 By virtue of the Deed of Assignment, the assignee is deemed subrogated
to the rights and obligations of the assignor and is bound by exactly the same
conditions as those which bound the assignor.4 Accordingly, an assignee cannot
acquire greater rights than those pertaining to the assignor.5 The general rule is that
an assignee of a non-negotiable chose in action acquires no greater right than what
was possessed by his assignor and simply stands into the shoes of the latter.6
Applying the foregoing, the Court finds that MS Maxco, as the Trade
Contractor, cannot assign or transfer any of its rights, obligations, or liabilities under
the Trade Contract without the written consent of FBDC, the Client, in view of Clause
19.0 on Assignment and Sub-letting of the Trade Contract between FBDC and MS
Maxco which explicitly provides that:
19.0 ASSIGNMENT AND SUB-LETTING
19.1 The Trade Contractor [Ms Maxco] shall not, without written consent of the
Client [FBDC],assign or transfer any of his rights, obligations or liabilities under this
Contract. The Trade Contractor shall not, without the written consent of the Client,
sub-let any portion of the Works and such consent, if given, shall not relieve the
Trade Contractor from any liability or obligation under this Contract.7 (Emphases
supplied)
Fong, as mere assignee of MS Maxcos rights under the Trade Contract it
had previously entered with FBDC, i.e., the right to recover any credit owing to any
unutilized retention money, is equally bound by the foregoing provision and hence,
cannot validly enforce the same without FBDCs consent.
Without any proof showing that FBDC had consented to the assignment,
Fong cannot validly demand from FBDC the delivery of the sum of P1,577,115.90 that
was supposedly assigned to him by MS Maxco as a portion of its retention money
with FBDC. The practical efficacy of the assignment, although valid between Fong
and MS Maxco, remains contingent on FBDCs consent. Without the happening of
said condition, only MS Maxco, and not Fong, can collect on the credit. Note,
however, that this finding does not preclude any recourse that Fong may take against
MS Maxco. After all, an assignment of credit for a consideration and covering a
demandable sum of money is considered as a sale of personal property. 8 To this,
Article 1628 of the Civil Code provides:
Art. 1628. The vendor in good faith shall be responsible for the existence and legality
of the credit at the time of the sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so expressly stipulated or unless
the insolvency was prior to the sale and of common knowledge.
Even in these cases he shall only be liable for the price received and for the
expenses specified in No. 1 of Article 1616.9
The vendor in bad faith shall always be answerable for the payment of all
expenses, and for damages.
WHEREFORE, the petition is GRANTED. The assailed Decision dated May 17, 2013
and the Resolution dated September 2, 2013 rendered by the Court of Appeals in
CA-G.R. CV. No. 93407 are herebyREVERSED and SET ASIDE, and a new one is
entered DISMISSING the instant complaint against petitioner Fort Bonifacio
Development Corporation. SO ORDERED.
17
Coquia v. Fieldmens Insurance
26 SCRA 172
Facts:
> On Dec. 1, 1961, Fieldmens Insurance co. Issued in favor of the Manila Yellow
Taxicab a common carrier insurance policy with a stipulation that the company
shall indemnify the insured of the sums which the latter wmy be held liable for with
respect to death or bodily injury to any faire-paying passenger including the driver
and conductor.
> The policy also stated that in the event of the death of the driver, the Company
shall indemnify his personal representatives and at the Companys option may
make indemnity payable directly to the claimants or heirs of the claimants.
> During the policys lifetime, a taxicab of the insured driven by Coquia met an
accident and Coquia died.
> When the company refused to pay the only heirs of Coquia, his parents, they
institued this complaint. The company contends that plaintiffs have no cause of
action since the Coquias have no contractual relationship with the company.
Issue:
Whether or not plaintiffs have the right to collect on the policy.
Held:
YES.
Athough, in general, only parties to a contract may bring an action based thereon,
this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines, reading: "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."
This is but the restatement of a well-known principle concerning contracts pour
autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in
his favor has been revoked by the contracting parties
In the case at bar, the policy under consideration is typical of contracts pour autrui
this character being made more manifest by the fact that the deceased driver paid
fifty percent (50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have a direct cause of action
against the Company, and, since they could have maintained this action by
themselves, without the assistance of the insured it goes without saying that they
could and did properly join the latter in filing the complaint herein.
Mandarin Villa, Inc. vs. CA and Clodualdo de Jesus
G.R. No. 119850. 20 June 1996.
Ponente: Franciso, J.:
Facts: In the evening of 19 Oct 1989, private respondent de Jesus hosted a dinner for
his friends at the peririoners restaurant, the Mandarin Villa Seafoods Village in
Mandaluyong City. After dinner, the waiter handed to de Jesus the bill amounting to
P2,658.50. De Jesus offered his BANKARD credit card to the waiter for payment.
Minutes later, the waiter returned and audibly informed that said credit card had
expired. De Jesus demonstrated that the card had yet to expire on Sept 1990, as
embossed on its face. De Jesus approached the cashier who again dishonored such
card. De Jesus offered his BPI express credit card instead and this was accepted,
honored and verified. The trial court and CA held petitioner to be negligent.
Issues: WON petitioner was negligent; If negligent, WON such negligence was the
proximate cause of private respondents damage.
Ruling: Petition dismissed. The test for determining the existence of negligence in a
case may be stated as follows: did the defendant in doing the alleged negligent act
use the reasonable care and caution which an ordinary prudent person would have
used in the same situation? If not, then he is guilty of negligence. In the case at bar,
the Point of Sale Guidelines which outlined the steps that petitioner must follow
under the circumstances reveals that whenever the words CARD EXPIRED flashes on
screen, petitioner should check cards expiry date as embossed in the card itself. If
unexpired, petitioner should honor the card. Clearly, it has not yet expired in 19 Oct
1989 when the same was dishonored by petitioner. Hence, petitioner did not use the
reasonable care and caution which an ordinary prudent person would have used in
the same situation and as such, petitioner is guilty of negligence.
The humiliation and embarrassment of private respondent was brought about by the
fact of dishonor by petitioner of private respondents valid BANKARD. Hence,
petitioners negligence is the proximate cause of private respondents damage.
18