CARMELCRAFT CORPORATION v.

NLRC

FACTS: After its registration as a labor union, the Carmelcraft Employees Union sought but did not get recognition
from the petitioners. Consequently, it filed a petition for certification election in June 1987.

On July 13, 1987, Carmelcraft Corporation, through its president and general manager, Carmen Yulo, announced in a
meeting with the employees that it would cease operations on August 13, 1987, due to serious financial losses.
Operations did cease as announced.

On August 17, 1987, the union filed a complaint with the Department of Labor against the petitioners for illegal lockout,
unfair labor practice and damages. On the next day, another complaint for payment of unpaid wages, emergency cost
of living allowances, holiday pay, and other benefits was filed by the former.

LA: On November 29, 1988, declared the shutdown illegal and violative of the employees' right to self-organization.
The claim for unpaid benefits was also granted. The case was appealed to NLRC.

NLRC: ruled in favor of private respondent Carmerlcraft Employees Union (CEU). In addition to the underpayment in
their wages, emergency living allowance, 13th month pay, legal holiday pay and premium pay for holidays for a period
of three years, the respondents are ordered to pay complainants their separation pay equivalent to one-half month pay
for every year of service, a fraction of six months or more shall be considered as one (1) whole year. Thus, petition for
review on certiorari.

Petitioner’s contentions:

That the employees are estopped from claiming the alleged unpaid wages and other compensation must also be
rejected. This claim is based on the waivers supposedly made by the complainants on the understanding that "the
management will implement prospectively all benefits under existing labor standard laws."

Further, petitioners argue that this assurance provided the consideration that made the quitclaims executed by the
employees valid. They add that the waivers were made voluntarily and contend that the contract should be respected
as the law between the parties.

ISSUE: Whether there was a valid waiver made by petitioners and CEU. NO.

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

ART. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs,
or prejudicial to a third person with a right recognized by law.
ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

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

That the employee has signed a satisfaction receipt does not result in a waiver; the law does not consider as valid any
agreement to receive less compensation than what a worker is entitled to recover. A deed of release or quitclaim
cannot bar an employee from demanding benefits to which he is legally entitled.

Release and quitclaim is inequitable and incongruous to the declared public policy of the State to afford protection to
labor and to assure the rights of workers to security of tenure.

Other issue/s: (in case itanong lang)

 Whether there was unfair labor practice thereby entitling the employees with separation pay. YES

SC: We agree with the public respondent that the real reason for the decision of the petitioners to cease operations
was the establishment of respondent Carmelcraft Employees Union. It was apparently unwelcome to the corporation,
which would rather shut down than deal with the union. There is the allegation from the private respondent that the
company had suggested that it might decide not to close the business if the employees were to affiliate with another
union which the management preferred.[5] This allegation has not been satisfactorily disproved. At any rate, the finding
of the NLRC is more believable than the ground invoked by the petitioners. Notably, this justification was made only
eight months after the alleged year-end loss and shortly after the respondent union filed a petition for certification
election.

The act of the petitioners was an unfair labor practice prohibited by Article 248 of the Labor Code, to wit:

ART. 248. Unfair labor practices of employers. - It shall be unlawful for an employer to commit any of the following
unfair labor practice:

(a) To interfere with, restrain or coerce employees in the exercise of their right to self-organization;

More importantly, it was a defiance of the constitutional provision guaranteeing to workers the right to self-organization
and to enter into collective bargaining with management through the labor union of their own choice and confidence.

The determination to cease operations is a prerogative of management that is usually not interfered with by the State
as no business can be required to continue operating at a loss simply to maintain the workers in employment. That
would be a taking of property without due process of law which the employer has a right to resist. But where it is

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manifest that the closure is motivated not by a desire to avoid further losses but to discourage the workers from
organizing themselves into a union for more effective negotiations with the management, the State is bound to
intervene. And, indeed, even without such motivation, the closure cannot be justified because the claimed losses are
obviously not serious. In this situation, the employees are entitled to separation pay at the rate of one-half month for
every year of service under Art. 283 of the Labor Code.

 Whether Yulo is not liable considering that Carmelcraft Corporation is a distinct and separate entity with a
legal personality of its own. NO.

SC: We do not agree. Our finding is that she is in fact and legal effect the corporation, being not only its president and
general manager but also its owner. Moreover, and this is a no less important consideration, she is raising this issue
only at this tardy hour, when she should have invoked this argument earlier, when the case was being heard before
the labor arbiter and later in the NLRC. It is too late now to shunt these responsibilities to the company after she herself
had been found liable.

WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs against the petitioner.
It is so ordered.

G.R. NO. 135149 : July 25, 2006

MANUEL C. ACOL, substituted by MANUEL RAYMOND ACOL, Petitioner, v. PHILIPPINE COMMERCIAL CREDIT
CARD INCORPORATED, Respondent.

FACTS: On August 20, 1982, petitioner Manuel Acol was issued by the respondent a Bankard credit card and
extension. For several years, he regularly used this card. Late in the evening of April 18, 1987, however, petitioner
discovered the loss of his credit card. After exhausting all efforts to find it, the first hour of the following day, April 19,
1987, a Sunday, he called up respondent's office and reported the loss. The representative he spoke to told him that
his card would be immediately included in the circular of lost cards. Again, on April 20, 1987, petitioner reiterated his
report on the loss of his card. He likewise wrote a letter dated April 20, 1987 confirming the loss and sent it to respondent
which received it on April 22, 1987.

On April 21, 1987, a day before receiving the written notice, respondent issued a special cancellation bulletin informing
its accredited establishments of the loss of the cards of the enumerated holders, including petitioner's. But unfortunately,
it turned out that somebody used petitioner's card on April 19 and 20, 1987 to buy commodities worth P76,067.28. The

3
accredited establishments reported the invoices for such purchases to respondent which then billed petitioner for that
amount.

Petitioner informed respondent he would not pay for the purchases made after April 19, 1987, the day he notified
respondent of the loss. At first, respondent agreed to reverse the disputed billings pending the result of an investigation
of petitioner's account. Subsequently, the respondent confirmed that it was not the petitioner who used his Bankard on
April 19 and 20, 1987.

Nonetheless, respondent reversed its earlier position to delete the disputed billings and insisted on collecting within 15
days from notice. It alleged that it was the most "practicable procedure and policy of the company." It cited provision
no. 1 of the "Terms and Conditions Governing The Issuance and Use of the Bankard" found at the back of the
application form which basically provides that the holder’s responsibility over the use of the card shall continue “until a
reasonable time after receipt by the Card Issuer of written notice of loss of the Card and its actual inclusion in the
Cancellation Bulletin.” Respondent then filed a suit against petitioner for the collection of P76,067.28, plus interest and
penalty charges.

The RTC dismissed the case, but upon respondent’s appeal to the CA, such decision was reversed.

ISSUE: WON the contested provision in the contract (provision no. 1 of the Terms and Conditions) was valid and
binding on the petitioner, given that the contract was one of adhesion.

HELD: The Court ruled in the affirmative.

It is worth noting that there are two conditions before the cardholder could be relieved of responsibility from
unauthorized charges: (1) the receipt by the card issuer of a written notice from the cardholder regarding the loss and
(2) the notification to the issuer's accredited establishments regarding such loss.

In Ermitaño v. CA , it was held that prompt notice by the cardholder to the credit card company of the loss or theft of
his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his lost or stolen
card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company
has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may
delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from

4
unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its
members through absolutely no fault of the cardholder. To require the cardholder to still pay for the unauthorized
purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be
unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy.

In this case, the effectivity of the cancellation of the lost card rests on an act entirely beyond the control of the
cardholder. Worse, the phrase "after a reasonable time" gives the issuer the opportunity to actually profit from
unauthorized charges despite receipt of immediate written notice from the cardholder.

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

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

NOTE: Ermitaño v. CA: In that case, petitioner-extension cardholder Manuelita Ermitaño lost her card when her bag
was snatched in Makati. That very same evening, she reported the loss and immediately thereafter sent written notice
to the respondent credit card company, BECC. Nonetheless, the respondent insisted on billing petitioner for purchases
made after the date of the loss totalling P3,197.70. To justify the billing, BECC cited a provision in their contract almost
akin to that of the one contained in the subject contract of this case.

[G.R. No. 88880. April 30, 1991.]

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and AMBROSIO PADILLA,
Respondents.

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

5
The Credit Agreement provided that:

"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and
the current and general policies of the Bank and those which the Bank may adopt in the future. x x x

The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18% interest per annum.

The Real Estate Mortgage Contract likewise provided that:jgc:chanro"The rate of interest charged on the obligation
secured by this mortgage as well as the interest on the amount x x x shall be subject during the life of this contract to
such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe for its
debtors."

Four (4) months advance interest and incidental expenses/charges were deducted from the loan, the net proceeds of
which were released to the private respondent by crediting or transferring the amount to his current account with the
bank.chanrobles.com : virtual law library

PNB informed the private respondent that (1) his credit line of P1.8 million "will expire on July 4, 1984," (2)" [i]f renewal
of the line for another year is intended, please submit soonest possible your request," and (3) the "present policy of the
Bank requires at least 30% reduction of principal before your line can be renewed." Complying, private respondent on
June 25, 1984, paid PNB P540,000 00 (30% of P1.8 million) and requested that "the balance of P1,260,000.00 be
renewed for another period of two (2) years under the same arrangement" and that "the increase of the interest rate of
my mortgage loan be from 18% to 21%" (p. 87, Rollo.).

The private respondent paid PNB P360,000.00. Private respondent reiterated in writing his request that "the increase
in the rate of interest from 18% be fixed at 21% of 24%.

On July 26, 1984, private respondent made an additional payment of P100,000.

On August 10, 1984, PNB informed private respondent that they cannot give due course to the latter’s request for
preferential interest rate. On August 17, 1984, private respondent further paid PNB P150,000.00.

In a letter to PNB, private respondent announced that he would "continue making further payments, and instead of a

6
‘loan of more than one year,’ I shall pay the said loan before the lapse of one year or before July 4, 1985. . . . I reiterate
my request that the increase of my rate of interest from 18% ‘be fixed at 21% or 24%.’"

On September 12, 1984, private respondent paid PNB P160,000.00.

PNB informed private respondent that "the interest rate on your outstanding line/loan is hereby adjusted from 32% p.a.
to 41% p.a. (35% prime rate + 6%) effective September 6, 1984;" and further explained "why we can not grant your
request for a lower rate of 21% or 24%."

The private respondent registered his protest against the increase of interest rate from 18% to 32% on July 4, 1984
and from 32% to 41% on September 6, 1984.

On October 15, 1984, private respondent reiterated his request that the interest rate should not be increased from 18%
to 32% and from 32% to 41%. He also attached (as payment) a check for P140,000.00.chanrobles.com.ph : virtual law
library

Like rubbing salt on the private respondent’s wound, the petitioner informed private respondent, that "the interest rate
on your outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus 6% spread) effective
25 October 1984."

In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan obligation to P300,000.00.

On December 18, 1984, private respondent filed in the RTC a complaint against PNB due to the fact that increases in
interest rates were illegal, unilateral excessive and arbitrary.

The trial court dismissed the complaint because the increases of interest were properly made.

Court of Appeals reversed the trial court.

ISSUE: WON the bank, within the term of the loan which it granted to the private respondent, may unilaterally change
or increase the interest rate stipulated therein at will and as often as it pleased.

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HELD: NO.

Although CB Circular No. 905 Series of 1982 removed the Usury Law ceiling on interest rates, it did not authorize the
PNB or any bank to increase the agreed interest rates from 18% to 48% within 4 months, in violation of PD 116 which
limits such charges to “once every twelve months”.

In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh.
13), and PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor resolutions of
the Monetary Board. CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates—
“x x x increases in interest rates are not subject to any ceiling prescribed by the Usury Law.” but it did not authorize the
PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48%
within a span of four (4) months, in violation of P.D. 116 which limits such changes to “once every twelve months.”

MUTUALITY OF CONTRACTS

A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of
the contracting parties is void.

Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent’s
loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: “ART. 1308. The contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them.” In order that obligations
arising from contracts may have the force of law between the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence,
even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license
would have been null and void for being violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party’s (the debtor) participation being reduced to the alternative “to take it or leave it” (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition.

The increases imposed by PNB contravene Art. 1956 of the Civil Code. PNB’s successive increases of the interest rate
on the private respondent’s loan, over the latter’s protest, were arbitrary as they violated an express provision of the
Credit Agreement (Exh. 1) Section 9.01 that its terms “may be amended only by an instrument in writing signed by the
party to be bound as burdened by such amendment.” The increases imposed by PNB also contravene Art. 1956 of the
Civil Code which provides that “no interest shall be due unless it has been expressly stipulated in writing.”

8
G.R. No. 204702 January 14, 2015

RICARDO C. HONRADO, Petitioner,

vs.
GMA NETWORK FILMS, INC., Respondent.

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

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

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

In 2003, GMA Films sued petitioner in the RTC to collect ₱1.6 million representing the fee it paid for Evangeline Katorse
(₱1.5 million) and a portion of the fee it paid for Bubot (₱350,000 4). GMA Films alleged that it rejected Evangeline
Katorse because "its running time was too short for telecast" 5 and petitioner only remitted ₱900,000 to the owner of
Bubot (Juanita Alano) keeping for himself the balance of ₱350,000. GMA Films prayed for the return of such amount
on the theory that an implied trust arose between the parties as petitioner fraudulently kept it for himself.

Petitioner denied liability, counter-alleging that after GMA Films rejected Evangeline Katorse, he replaced it with another
film, Winasak na Pangarap, which GMA Films accepted. As proof of such acceptance, petitioner invoked a certification
of GMA Network, attesting that such film "is of good broadcast quality". Regarding the fee GMA Films paid for Bubot,
petitioner alleged that he had settled his obligation to Alano. Alternatively, petitioner alleged that GMA Films, being a

9
stranger to the contracts he entered into with the owners of the films in question, has no personality to question his
compliance with the terms of such contracts.

RTC dismissed GMA Films’ complaint. The CA granted GMA Films’ appeal and ordered respondent to pay GMA Films
₱2 million8 as principal obligation with 12% annual interest, among others. The CA found that (1) GMA Films was
authorized under Paragraph 4 of the Agreement to reject Evangeline Katorse, and (2) GMA Films never accepted
Winasak na Pangarap as replacement because it was a "bold" film.

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

HELD: NO. Petitioner committed no breach of contract or trust.

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

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

Being a stranger to such arrangements, GMA Films is no more entitled to complain of any breach by petitioner of his
contracts with the film owners than the film owners are for any breach by GMA Films of its Agreement with petitioner.

We entertain no doubt that petitioner forged separate contractual ar rangements with the owners of the films listed in
the Agreement, spelling out the terms of payment to the latter. Whether or not petitioner complied with these terms,

10
however, is a matter to which GMA Films holds absolutely no interest. Being a stranger to such arrangements, GMA
Films is no more entitled to complain of any breach by petitioner of his contracts with the film owners than the film
owners are for any breach by GMA Films of its Agreement with petitioner.

Mamaril v. Boy Scouts of the Phiippines

G.R. No. 179382, January 14, 2013

FACTS: This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision1 and August 16, 2007
Resolution of the Court of Appeals (CA) as the Defendant-Appellant Boy Scout of the Philippines was absolved from
any liability.

Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) were jeepney operators who would park their six
(6) passenger jeepneys every night at the Boy Scout of the Philippines' (BSP) compound for a fee of ₱300.00 per
month for each unit. As usual, all these vehicles were parked inside the BSP compound, however the following morning,
one of the vehicles was missing and was never recovered. According to the security guards Cesario Peña (Peña) and
Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its security and protection,
a male person who looked familiar to them took the subject vehicle out of the compound.

Thereafter, Sps. Mamaril filed a complaint for damages before the RTC against BSP, AIB, Peña and Gaddi averring
that the loss of the subject vehicle was due to the gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite their agreement that only authorized drivers duly
endorsed by the owners could do so. Peña and Gaddi even admitted their negligence during the ensuing investigation.
BSP denied any liability.

The Regional Trial Court rendered a Decision in favor of Sps. Mamaril and found that the act of Peña and Gaddi in
allowing the entry of an unidentified person and letting him drive out the subject vehicle in violation of their internal
agreement with Sps. Mamaril constituted gross negligence, rendering AIB and its security guards liable for the former's
loss. BSP was also adjudged liable because the Guard Service Contract it entered into with AIB offered protection to
all properties inside the BSP premises, which necessarily included Sps. Mamaril's vehicles. Moreover, the said contract
stipulated AIB's obligation to indemnify BSP for all losses or damages that may be caused by any act or negligence of
its security guards. Accordingly, the BSP, AIB, and security guards Peña and Gaddi were held jointly and severally
liable for the loss suffered by Sps. Mamaril. Court of Appeals affirmed the finding of negligence on the part of security
guards Peña and Gaddi, however, it absolved BSP from any liability, holding that the Guard Service Contract is purely
between BSP and AIB and that there was nothing therein that would indicate any obligation and/or liability on the part

11
of BSP in favor of third persons, such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP was
negligent.

ISSUE: Whether or not BSP should be held liable for their loss on the basis of the Guard Service Contract that the
latter entered into with AIB and their parking agreement with BSP.

RULING: No. Such contention cannot be sustained.

Article 1311 of the Civil Code states:

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

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

Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to as a stipulation pour
autrui, may demand its fulfillment, the following requisites must concur: (1) There is a stipulation in favor of a third
person; (2) The stipulation is a part, not the whole, of the contract; (3) The contracting parties clearly and deliberately
conferred a favor to the third person - the favor is not merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated his or her acceptance of the favor before its revocation; and (6)
The contracting parties do not represent, or are not authorized, by the third party. However, none of the foregoing
elements obtains in this case.

It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract. Neither did the subject agreement
contain any stipulation pour autrui. And even if there was, Sps. Mamaril did not convey any acceptance thereof. Thus,
under the principle of relativity of contracts, they cannot validly claim any rights or favor under the said agreement.

As correctly found by the CA:

First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Security Agency is purely

12
between the parties therein. It may be observed that although the whereas clause of the said agreement provides that
defendant-appellant desires security and protection for its compound and all properties therein, as well as for its officers
and employees, while inside the premises, the same should be correlated with paragraph 3(a) thereof which provides
that the security agency shall indemnify defendant-appellant for all losses and damages suffered by it attributable to
any act or negligence of the former's guards.

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

Moreover, the Court concurs with the finding of the CA that the contract between the parties herein was one of lease
as defined under Article 1643 of the Civil Code. It has been held that the act of parking a vehicle in a garage, upon
payment of a fixed amount, is a lease. Even in a majority of American cases, it has been ruled that where a customer
simply pays a fee, parks his car in any available space in the lot, locks the car and takes the key with him, the possession
and control of the car, necessary elements in bailment, do not pass to the parking lot operator, hence, the contractual
relationship between the parties is one of lease.

In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound for a monthly fee of
₱300.00 for each unit and took the keys home with them. Hence, a lessor-lessee relationship indubitably existed
between them and BSP. On this score, Article 1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to
deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) to make
on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been
devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In relation thereto, Article 1664 of the same Code states
that "the lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the
thing leased; but the lessee shall have a direct action against the intruder." Here, BSP was not remiss in its obligation
to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security guards to secure the
premises; hence, it should not be held liable for the loss suffered by Sps. Mamaril.

It bears to reiterate that the subject loss was caused by the negligence of the security guards in allowing a stranger to
drive out plaintiffs-appellants' vehicle despite the latter's instructions that only their authorized drivers may do so.
Moreover, the agreement with respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only with
AIB and its security guards, without the knowledge and consent of BSP. Accordingly, the mishandling of the parked

13
vehicles that resulted in herein complained loss should be recovered only from the tort feasors (Peña and Gaddi) and
their employer, AIB; and not against the lessor, BSP.

Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible for loss of vehicle or
any of its accessories or article left therein" contained in the BSP issued parking ticket was void for being a contract of
adhesion and against public policy, suffice it to state that contracts of adhesion are not void per se. It is binding as any
other ordinary contract and a party who enters into it is free to reject the stipulations in its entirety. If the terms thereof
are accepted without objection, as in this case, where plaintiffs-appellants have been leasing BSP's parking space for
more or less 20 years, then the contract serves as the law between them. Besides, the parking fee of ₱300.00 per
month or ₱10.00 a day for each unit is too minimal an amount to even create an inference that BSP undertook to be
an insurer of the safety of plaintiffs-appellants' vehicles. Hence, BSP is not liable.

TANAY RECREATION CENTER v. CATALINA MATIENZO FAUST

FACTS: In Aug 1971, Petitioner Tanay Recreation Center and Development Corp. (TRCDC lessee) entered into a
contract of lease with Catalina Fausto (lessor) over a parcel of land, to which Tanay Coliseum Cockpit operated by the
petitioner stands. It was stipulated in the contract that the lease is for a term of 20 years subject for renewal within 60
days prior to its expiration. Also, if Fausto decides to sell the property, the petitioner shall have the “priority right” to
purchase the same.

In June 1991, petitioner informed Fausto of its intention to renew the lease. But the former got a response from Fausto’s
daughter, respondent Pacunayen asking petitioner to remove all the improvement built thereon as she is now the
absolute owner of the said property. It was found out that Fausto had earlier sold the property to Pacunayen for the
sum of 10k under and the title has already been transferred under her name. Despite efforts, the matter was not
resolved. Consequently, petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance
with Damages, and Injunction.

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

14
RTC: rendered judgment extending the period of the lease for another seven years from August 1, 1991 at a monthly
rental of P10,000.00, and dismissed petitioner's claim for damages.

CA: ruled in favor of respondent. It ordered petitioner to vacate the leased premises immediately. Ratio: The CA
acknowledged the priority right of TRCDC to purchase the property in question. However, the CA interpreted such
right to mean that it shall be applicable only in case the property is sold to strangers and not to Fausto's
relative. The CA stated that "(T)o interpret it otherwise as to comprehend all sales including those made to relatives
and to the compulsory heirs of the seller at that would be an absurdity," and "her (Fausto's) only motive for such
transfer was precisely one of preserving the property within her bloodline and that someone administer the property."

Also, it ruled that petitioner already acknowledged the transfer of ownership and is deemed to have waived its right to
purchase the property. The CA even further went on to rule that even if the sale is annulled, petitioner could not achieve
anything because the property will be eventually transferred to Pacunayen after Fausto's death.

MR denied. Thus, petition for review on certiorari.

ISSUE: Whether petitioner is entitled with the right of first refusal. YES.

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

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

In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves
no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the
lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right
may be exercised only when the sale is made to strangers or persons other than Fausto's kin. Thus, under the terms

15
of petitioner's right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her
relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected
by petitioner.

Furthermore, it was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and
respondent because the property would still remain with respondent after the death of her mother by virtue of
succession, as in fact, Fausto died in March 1996, and the property now belongs to respondent, being Fausto's heir.

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

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

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

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

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

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY [MCIAA] vs. HEIRS OF GAVINA

DOCTRINE: Article 1317 of the Civil Code provides that no person could contract in the name of another without being
authorized by the latter, or unless he had by law a right to represent him; the contract entered into in the name of

16
another by one who has no authority or legal representation, or who has acted beyond his powers, is unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by
the other contracting party.

FACTS: On October 14, 1957, Julian Cuizon executed a Deed of Extrajudicial Settlement and Sale covering Lot No.
4539 situated in Lapu-lapu City in favor of the Civil Aeronautics Administration, the predecessor-in-interest of petitioner
Manila Cebu International Airport Authority. Since then until the present, MCIAA remained in material, continuous,
uninterrupted and adverse possession of the subject lot through the CAA, later renamed the Bureau of Air
Transportation (BAT), and is presently known as the Air Transportation Office (ATO). The subject lot was transferred
and conveyed to MCIAA by virtue of Republic Act No. 6958.

In 1980, the respondents caused the judicial reconstitution of the original certificate of title covering the subject lot.
Consequently, OCT RO-2431 was reconstituted for Lot No. 4539 in the names of the respondents' predecessors-in-
interest, Gavina Cuison et al. They asserted that they had not sold their shares in the subject lot, and had not authorized
Julian to sell their shares to MCIAA's predecessor-in-interest.

The failure of the respondents to surrender the owner's copy of OCT No. RO-2431 prompted MCIAA to sue them for
the cancellation of title in the RTC, alleging in its complaint that the certificate of title conferred no right in favor of the
respondents because the lot had already been sold to the Government in 1957.

At the trial, MCIAA presented Romeo Cueva, as its sole witness who testified that the documents pertaining to the
subject lot were the Extrajudicial Settlement and Sale and Tax Declaration in the name of the BAT; and that the subject
lot was utilized as part of the expansion of the Mactan Export Processing Zone Authority I.

The respondents contend that the Deed and Tax Declaration had no probative value to support MCIAA's cause of
action and its prayer for relief. They argued that what MCIAA submitted was a mere photocopy of the Deed; that even
assuming that the Deed was a true reproduction of the original, the sale was unenforceable against them because it
was only Julian who had executed the same without obtaining their consent or authority as his co-heirs; that Article
1317 of the Civil Code provided that "no one may contract in the name of another without being authorized by the latter,
or unless he has by law a right to represent him;" and that the tax declaration had no probative value by virtue of its
having been derived from the unenforceable sale.

17
The RTC dismissed MCIAA's complaint. The CA affirmed the orders of the RTC.

ISSUE: Was the subject lot validly conveyed in its entirety to the petitioner?

HELD: The CA and the RTC concluded that the Deed was void as far as the respondents' shares in the subject lot
were concerned, but valid as to Julian's share. Their conclusion was based on the absence of the authority from his
co-heirs in favor of Julian to convey their shares in the subject lot. We have no reason to overturn the affirmance of the
CA on the issue of the respondents' co-ownership with Julian. Hence, the conveyance by Julian of the entire property
pursuant to the Deed did not bind the respondents for lack of their consent and authority in his favor. As such, the Deed
had no legal effect as to their shares in the property. Article 1317 of the Civil Code provides that no person could
contract in the name of another without being authorized by the latter, or unless he had by law a right to represent him;
the contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, is unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party. But the conveyance by Julian through the Deed had
full force and effect with respect to his share of 1/22 of the entire property consisting of 546 square meters by virtue of
its being a voluntary disposition of property on his part.

As ruled in Torres v. Lapinid

x x x even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other
co-owners who did not consent to the sale. This is because the sale or other disposition of a co-owner affects only his
undivided share and the transferee gets only what would correspond to his grantor in the partition of the thing owned
in common.

LAUDICO V. ARIAS

FACTS: Vicente Arias, who, with his co- defendants, owned the building Nos. 205 to 221 on Carriedo Street, on his
behalf and that of his co- owners, wrote a letter to the plaintiff, Mamerto Laudico, giving him an option to lease the
building to a third person, and transmitting to him for that purpose a tentative contract in writing containing the conditions
upon which the proposed lease should be made. Later Mr. Laudico presented his co-plaintiff, Mr. Fred. M. Harden, as
the party desiring to lease the building. On one hand, other conditions were added to those originally contained in the
tentative contract, and, on the other, counter-propositions were made and explanations requested on certain points in

18
order to make them clear. These negotiations were carried on by correspondence and verbally at interviews held with
Mr. Vicente Arias, no definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a letter to
Mr. Arias on March 6, 1919, advising him that all his propositions, as amended and supplemented, were accepted. It
is admitted that this letter was received by Mr. Arias by special delivery at 2.53 p.m. of that day. On that same day, at
11.25 in the morning, Mr. Arias had, in turn, written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to lease
the building.

The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the contract of lease of the
building in question. It thus results that when Arias sent his letter of withdrawal to Laudico, he had not yet received the
letter of acceptance, and when it reached him, he had already sent his letter of withdrawal.

ISSUE: Whether or not there was a perfected of acceptance, his letter of revocation had already been received. The
latter was sent through a messenger at 11.25 in the morning directly to the office of Laudico and should have been
received contract of lease between the parties?

HELD: None. Under Article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any effect
until it comes to the knowledge of the offerer. Therefore, before he learns of the acceptance, the latter is not yet bound
by it and can still withdraw the offer. Consequently, when Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had
the right to do so, inasmuch as he had notyet receive notice of the acceptance. And when the notice of the acceptance
was received by Mr. Arias, it no longer had any effect, as the offer was not then in existence, the same having already
been withdrawn. There was no meeting of the minds, through offer and acceptance, which is the essence of the
contract. While there was an offer, there was no acceptance, and when the latter was made and could have a binding
effect, the offer was then lacking. Though both the offer and the acceptance existed, they did not meet to give birth to
a contract.

Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily notice of the
revocation of an offer must be given to avoid an acceptance which may convert in into a binding contract, and that no
such notice can be deemed to have been given to the person to whom the offer was made unless the revocation was
in fact brought home to his knowledge.

This, however, has no application in the instant case, because when Arias received the letter immediately on that same
morning, or at least, before Arias received the letter of acceptance. On this point we do not give any credence to the
testimony of Laudico that he received this letter of revocation at 3.30 in the afternoon of that day. Laudico is interested
in destroying the effect of this revocation so that the acceptance may be valid, which is the principal ground of his
complaint.

19
But even supposing Laudico's testimony to be true, still the doctrine invoked has no application here. With regard to
contracts between absent persons there are two principal theories, to wit, one holding that an acceptance by letter of
an offer has no effect until it comes to the knowledge of the offerer, and the other maintaining that it is effective from
the time the letter is sent. The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to
its most eminent commentators, it means that, before the acceptance is known, the offer can be revoked, it not being
necessary, in order for the revocation to have the effect of impeding the perfection of the contract, that it be known by
the acceptant.Mucius Scaevola says apropros: "To our mind, the power to revoke is implied in the criterion that no
contract exists until the acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds,
since up to that moment there exists only a unilateral act, it is evident that he who makes it must have the power to
revoke it by withdrawing his proposition, although with the obligation to pay such damages as may have been sustained
by the person or persons to whom the offer was made and by whom it was accepted, if he in turn failed to give them
notice of the withdrawal of the offer. This view is confirmed by the provision of article 1257,paragraph 2, concerning the
case where a stipulation is made in favor of a third person, which provision authorizes the contracting parties to revoke
the stipulation before the notice of its acceptance. That case is quite similar to that under comment, as said stipulation
in favor of a third person (who, for the very reason of being a third person, is not a contracting party) is tantamount to
an offer made by the makers of the contract which may or may not be accepted by him, and which does not have any
effect until the obligor is notified, and may, before it is accepted, be revoked by those who have made it; therefore, the
case being similar, the same rule applies."

SALVADOR P. MALBAROSA v. HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP.

G.R. No. 125761; April 30, 2003

FACTS: Petitioner Salvador P. Malbarosa intimated to Senen Valero his desire to retire from the SEADC group of
companies and requested that his 1989 incentive compensation as president of Philtectic Corporation be paid to him.
On January 8, 1990, the petitioner sent a letter to Senen Valero tendering his resignation, effective February 28, 1990
from all his positions in the SEADC group of companies, and reiterating therein his request for the payment of his
incentive compensation for 1989. On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer
addressed to the petitioner stating therein that petitioner’s resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he was entitled to an incentive compensation in the amount
of P251,057.67, and proposing that the amount be satisfied, thus:

“The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to you at a value of
P220,000.00.

20
-The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center, Inc. will be
transferred to you.”

On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the March 14, 1990 Letter-
offer of the respondent and demanding that the petitioner return the car and his membership certificate in the
Architectural Center, Inc. within 24 hours from his receipt thereof. The petitioner received the original copy of the letter
on the same day.

On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that he cannot comply
with said demand as he already accepted the March 14, 1990 Letter-offer of the respondent when he affixed on March
28, 1990 his signature on the original copy of the letter-offer.

ISSUES:

I. Was there a valid acceptance?

II. Was there an effective withdrawal?

HELD:

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

The 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.

II. YES.

Implicit in the authority given to Philtectic Corporation to demand for and recover from the petitioner the subject car and
to institute the appropriate action against him to recover possession of the car is the authority to withdraw the

21
respondent’s March 14, 1990 Letter-offer. It cannot be argued that respondent authorized Philtectic Corporation to
demand and sue for the recovery of the car and yet did not authorize it to withdraw its March 14, 1990 Letter-offer to
the petitioner. Besides, when he testified, Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to
the petitioner was upon his instruction and conformably with the aforesaid resolution of the Board of Directors of the
respondent.

Georg v. Holy Trinity College, Inc., G.R. No. 190408 (July 20, 2016)

FACTS: This petition for review seeks to reverse the 17 November 2009 Decision1 of the Court of Appeals in CA-G.R.
CV No. 89990 and reinstate the 29 November 2006 Decision of the Regional Trial Court (RTC), Branch 15, Tabaco
City in Civil Case No. T-2161.

The Holy Trinity College Grand Chorale and Dance Company was organized in 1987 by Sister Teresita Medalle (Sr.
Medalle), the President of respondent Holy Trinity College in Puerto Princesa City. In 2001, the Group was slated to
perform in Greece, Italy, Spain and Germany. Edward Enriquez (Enriquez), who allegedly represented Sr. Medalle,
contacted petitioner Benjie B. Georg to seek assistance for payment of the Group's international airplane tickets.
Petitioner is the Filipino wife of a German national Heinz Georg. She owns a German travel agency named D Travellers
Reiseburo Georg. Petitioner, in turn, requested her brother, Atty. Benjamin Belarmino, Jr. (Atty. Belarmino), to represent
her in the negotiation with Enriquez.

On 24 April 2001, MOA was executed between petitioner, represented by Atty. Belarmino, as first party-assignee; the
Group, represented by Sr. Medalle, O.P. and Attorney-in-Fact Enriquez as second-party assignor, and S.C. Roque
Group of Companies Holding Limited Corporation and S.C. Roque Foundation Incorporated, represented by Violeta P.
Buenaventura, as foundation-grantor.

Under the said Agreement, petitioner, through her travel agency, will advance the payment of international airplane
tickets in favor of the Group on the assurance of the Group represented by Sr. Medalle through Enriquez that there is
a confirmed financial allocation from the foundation-grantor. The second-party assignor assigned said amount in favor
of petitioner. Petitioner paid for the Group's domestic and international airplane tickets.

Petitioner claimed that the second-party assignor/respondent and the foundation-grantor have not paid and refused to

22
pay their obligation under the MOA. Petitioner prayed that they be ordered to solidarily pay the amount representing
the principal amount mentioned in the Agreement, moral, exemplary, and actual damages, legal fees, and cost of suit.

Respondent argued that the MOA on which petitioner based its cause of action does not state that respondent is a
party. Neither was respondent obligated to pay the amount for the European Tour of the Group nor did it consent to
complying with the terms of the MOA. Respondent asserted that the thumbmark of Sr. Medalle was secured without
her consent. Respondent maintained that since it was not a party to the MOA, it is not bound by the provisions stated
therein.

The RTC ruled in favor of petitioner. Court of Appeals relieved respondent of any liability for petitioner's monetary
claims. The Court of Appeals held that the record is bereft of any showing that Sr. Medalle participated in the
negotiation, perfection and partial consummation of the contract whereby petitioner advanced the payment of
international and domestic tickets required for the Group's European tour. The Court of Appeals found that petitioner
had agreed to advance the payment based on the following considerations: 1) the representation made by Enriquez
that he was respondent's employee/representative and that the funds were available for said tickets; 2) the supposed
confirmation from Dietz that Enriquez was an employee/representative of respondent and that she had been in contact
with Sr. Medalle regarding the Group's European tour; and 3) the assurance given by Fr. Vincent Brizuela that Sr.
Medalle was, indeed, respondent's President. Petitioner relied on the confirmation of Dietz and did not even contact
Sr. Medalle. The Court of Appeals held that petitioner failed to exercise reasonable diligence in ascertaining the
existence and extent of Enriquez's authority to act for and in behalf of the Group or for that matter, respondent. The
Court of Appeals noted the absence of respondent's name in the MOA, thus it concluded that respondent was clearly
not a party to the MOA. Hence, this petition

ISSUES:

Whether or not respondent is liable under the Memorandum of Agreement

Whether or not the Doctrine of Apparent Authority applies in this case.

RULING:

1. Under Article 1330 of the Civil Code, consent may be vitiated by any of the following: (1) mistake, (2) violence,
(3) intimidation, (4) undue influence, and (5) fraud. Under the same provision, the contract becomes voidable.
Petitioner claims that Sr. Medalle knew fully well the import of the MOA when she affixed her thumbmark therein
while respondent alleges that fraud was employed to induce Sr. Medalle to affix her thumbmark. There is fraud
when one party is induced by the other to enter into a contract, through and solely because of the latter's
insidious words or machinations. But not all forms of fraud can vitiate consent. Under Article 1330, fraud refers
to dolo causante or causal fraud, in which, prior to or simultaneous with execution of a contract, one party
secures the consent of the other by using deception, without which such consent would not have been given.

23
Sr. Medalle claimed that she affixed her thumbmark on the MOA on the basis of Enriquez's representation that her
signature/thumbmark is necessary to facilitate the release of the loan. As intended, the affixing of her thumbmark in
fact caused the immediate release of the loan. Petitioner's claim that the provisions of the MOA were read to Sr. Medalle
was found credible by the Court of Appeals. The Court of Appeals discussed at length how proper care and caution
was taken by Atty. Belarmino to verify what the Groups's trip was all about and the extent of the authority of Sr. Medalle
regarding the project. It simply defies logic that Atty. Belarmino would employ fraud just so Sr. Medalle could affix her
thumbmark to facilitate the release of the loan coming from Atty. Belarmino himself.

Respondent's denial of privity to the loan contract was based on the following reasons: 1) that respondent's name does
not appear on the MOA; 2) that Sr. Medalle was no longer the President of Holy Trinity College when she affixed her
thumbmark on the MOA; and 3) that Sr. Medalle was not authorized by respondent through a board resolution to enter
into such agreement.

School administration of the Holy Trinity College has control and supervision of the Grand Chorale and Dance
Company particularly in the selection and hiring of its trainers but as to their termination as well. A fortiori,
Jearold Loyola and Errol Gallespen were formally severed per April 30, 2001 Letter of Sr. Estrella Tangan. This
clearly shows that indeed, the Holy Trinity College Grand Chorale and Dance Company were both under the
power of the school administration. Moreover, it is also clear that the costumes were likewise financed by the
school administration.

With the foregoing, the court is convinced that the indeed the Holy Trinity College Grand Chorale and Dance Company
do not have a life of its own and merely derive its creation, existence and continued operation or performance at the
hands of the school administration. Without the decision of the school administration, the said Chorale and Dance
Company is completely inoperative.

Sr. Medalle, as President of Holy Trinity, is clothed with sufficient authority to enter into a loan agreement. As
held by the trial court, the Holy Trinity College's Board of Trustees never contested the standing of the Dance
and Chorale Group and had in fact lent its support in the form of sponsoring uniforms or freely allowed the
school premises to be used by the group for their practice sessions.

2. Assuming arguendo that Sr. Medalle was not authorized by the Holy Trinity College Board, the doctrine of apparent
authority applies in this case.

24
The doctrine of apparent authority provides that a corporation will be estopped from denying the agent's
authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent
authority, and it holds him out to the public as possessing the power to do those acts.

The existence of apparent authority may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority
to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual
or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.

In this case, Sr. Medalle formed and organized the Group. She had been giving financial support to the Group, in her
capacity as President of Holy Trinity College. Sr. Navarro admitted that the Board of Trustees never questioned the
existence and activities of the Group. Thus, any agreement or contract entered into by Sr. Medalle as President of Holy
Trinity College relating to the Group bears the consent and approval of respondent. It is through these dynamics that
we cannot fault petitioner for relying on Sr. Medalle's authority to transact with petitioner.

Finding that Sr. Medalle possessed full mental faculty in affixing her thumbmark in the MOA and that respondent is
hereby bound by her actions, we reverse the ruling of the Court of Appeals.

G.R. No. 151035 June 3, 2004

ANDREA MAYOR and VERGEL ROMULO, petitioners,

vs.
LOURDES MASANGKAY BELEN and LEONARDO BELEN, respondents.

FACTS: Mayor was the original owner of a parcel of land located at Bonifacio Street, San Pablo City. On November
27, 1979, Belen purchased the property from Mayor in consideration of P18,000.00 payable in installments. Belen was
able to pay P11,445.00 out of the P18,000.00 purchase price leaving a balance of P6,555.00.

In June 1980, Belen sold back the subject property to Mayor in consideration of P18,000.00. For this purpose, Belen
executed the Kasulatan ng Bilihang Tuluyan in favor of Mayor.

To secure a loan in the amount of P12,000.00 obtained from Belen, Mayor executed a real estate mortgage over the
subject property denominated as Kasulatan ng Sanglaan in favor of the former.

25
In August 1980, Belen filed a civil suit against Mayor, for annulment of the Kasulatang Bilihang Tuluyan and Kasulatan
ng Sanglaan.

Belen alleged that Mayor, through Romulo, made her believe that the sale in her favor by Mayor is void because the
deed of conveyance did not reflect the true agreement of the parties as to the mode of payment of the purchase price,
i.e., the purchase price was made on installments and not in cash as stipulated in the document. She further averred
that she was also made to believe that she might lose what she had already paid which amounted to 70% of the
purchase price. She was convinced by the representations of Mayor and Romulo that it would be best for the latter to
make it appear that Mayor was merely mortgaging the subject property to her. Lourdes readily agreed to the scheme
believing that it was for the protection of her rights. It turned out that the scheme was in fact a ruse employed by Romulo
and Mayor to re-acquire the property, thus, her consent in the notarized Kasulatan ng Bilihang Tuluyan and Kasulatan
ng Sanglaan was obtained through fraud and undue influence.

Mayor denied the material allegations insisting that Belen freely and voluntarily executed the subject contracts and the
same is binding on the parties.

The RTC ruled in favor of Belen.

The Court of Appeals affirmed the decision of the RTC.

ISSUE: Whether or not fraud attended the execution of the Kasulatan ng Bilihan and Kasulatan ng Sanglaan

RULING: Yes.

The Civil Code provides that – ART. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.

As defined, fraud refers to all kinds of deception, whether through insidious machination, manipulation, concealment or
misrepresentation to lead another party into error. The deceit employed must be serious. It must be sufficient to impress
or lead an ordinarily prudent person into error, taking into account the circumstances of each case.

The legal maxim fraus est odiosa et non praesumenda – and argue that to establish the claim of fraud, evidence must

26
be clear and more than merely preponderant is likewise not applicable. This brings to the fore Belen’s limited
educational attainment. While indeed the deeds denominated as Kasulatan ng Bilihang Tuluyan and Kasulatan ng
Sanglaan were executed in Tagalog, a close scrutiny thereof shows that they are practically literal translations of their
English counterparts. Thus, the mere fact that the documents were executed in the vernacular neither clarified nor
simplified matters for Belen who admitted on cross-examination that she merely finished Grade 3, could write a little,
and understand a little of the Tagalog language.

The appellate court could not then be faulted when it invoked Article 1332 of the Civil Code which states:

ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained
to the former.

As aptly pointed out by the Court of Appeals, the principle that a party is presumed to know the import of a document
to which he affixes his signature is modified by the foregoing article. Under the said article, where a party is unable to
read or when the contract is in a language not understood by a party and mistake or fraud is alleged, the obligation to
show that the terms of the contract had been fully explained to said party who is unable to read or understand the
language of the contract devolves on the party seeking to enforce it. The burden rests upon the party who seeks to
enforce the contract to show that the other party fully understood the contents of the document. If he fails to discharge
this burden, the presumption of mistake, if not, fraud, stands unrebutted and controlling

In this case, petitioners alleged that Belen affixed her signature on the questioned contracts freely and voluntarily.
Suffice it to state that such self-serving claims are not enough to rebut the presumption of fraud provided for in Article
1332 of the Civil Code. As the party claiming affirmative relief from the court, it is incumbent upon petitioners to
convincingly prove their claim. They failed to do.

They bought the said land through installments and already paid P11,445.00 of the P18,000.00 purchase price. Mayor
also caused the transfer in their names of the tax declarations over the subject land and house. This they did even
before they could have completed the payment of the purchase price. In short, their intention and desire to stay on the
property is very evident. Mayor’s suggestion, therefore, that Belen made a sudden volte face and decided to resell the
property to them – seven months from the date of the property’s acquisition, after payment of almost two-thirds of the
purchase price and transferring the tax declarations thereof in respondents’ names, borders on the absurd and the
incredible. It simply is contrary to human experience for respondents to have had a hasty change of heart to dispose
of the land on which they intend to make their home and upon which they had invested so much.

27
A mortgage subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the
obligation whose security it was constituted. 16 Thus, in case of non-payment, the creditor may proceed against the
property for the fulfillment of the obligation. No creditor would accept property as security for the fulfillment of the
obligation knowing that the property offered as security would soon be out of the commerce of man.

Concededly, both the Kasulatan ng Bilihang Tuluyan and the Kasulatan ng Sanglaan are public documents and there
is no dispute that generally, a notarized document carries the evidentiary weight conferred upon it with respect to its
due execution. In addition, documents acknowledged before a notary public have in their favor the presumption of
regularity. However, the presumption is not absolute and may be rebutted by clear and convincing evidence to the
contrary. The presumption cannot be made to apply in this case because the regularity in the execution of the
documents were challenged in the proceedings below where their prima facie validity was overthrown by the highly
questionable circumstances pointed out by both trial and appellate courts. Furthermore, notarization per se is not a
guarantee of the validity of the contents of a document.

WHEREFORE, in view of all the foregoing, the petition is DENIED and the decision dated April 3, 2001 of the
Court of Appeals in CA-G.R. CV No. 48646, is AFFIRMED in toto.

HEIRS OF CECILIO (also known as BASILIO) CLAUDEL,

vs.
HON. COURT OF APPEALS, HEIRS OF MACARIO, ESPERIDIONA, RAYMUNDA and CELESTINA, all surnamed
CLAUDEL

FACTS: As early as December 28, 1922, Basilio also known as "Cecilio" Claudel acquired from the Bureau of Lands a
parcel of land Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa, Rizal, with an
area of 10,107 square meters and he secured Transfer Certificate of Title (TCT) No. 7471 issued by the Registry of
Deeds for the Province of Rizal in 1923.

Thirty-nine years after his death, two branches of Cecilio’s family contested the ownership over the land – the Heirs of
Cecilio and the Siblings of Cecilio. The Heirs of Cecilio partitioned the lot among themselves and obtained the
corresponding TCTs. Siblings of Cecilio filed a complaint for Cancellation of Titles and Reconveyance with Damages
alleging that their parents had purchased from the late Cecilio several portions of the lot. They admitted that the

28
transaction was verbal however, as proof of the sale, the siblings Of Cecilio presented a subdivision plan of the said
land, dated March 25, 1930, indicating the portions allegedly sold to the siblings of Cecilio.The CFI dismissed the
complaint disregarding the evidence.

The CA reversed the CFI’s ruling ordering the cancellation of the TCTs issued in the name of the Heirs of Cecilio. As
ruled by the CA, the Statute of Frauds applies only to executory contracts and not to consummated sales as in the case
at bar where oral evidence may be admitted.

ISSUES: Whether or not a contract of sale of land may be proven orally

RULING: Yes, a contract of sale of land may be proven orally subject to certain exceptions. This case falls within the
exception.

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered
into. For nowhere does law or jurisprudence prescribe that the contract of sale be put in writing before such contract
can validly cede or transmit rights over a certain real property between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the person against
whom that claim is brought cannot present any proof of such sale and hence has no means to enforce the contract.
Thus the Statute of Frauds was precisely devised to protect the parties in a contract of sale of real property so that no
such contract is enforceable unless certain requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases, an agreement
hereafter made shall be unenforceable by action unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:

xxx xxx xxx

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e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations depending for
their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions
to be evidenced in Writing.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the contract of sale made
by Cecilio with his siblings cannot be proved.

Guzman Bocaling vs. Bonnevie

FACTS: The subject of the controversy is a parcel of land measuring 600 sq. meters with two buildings constructed
thereon, belonging to the Intestate Estate of Jose L. Reynoso. This property was leased to Raoul S. Bonnevie and
Christopher Bonnevie by the administratrix, Africa Valdez de Reynoso, for a period of 1 year at a monthly rental of
P4,000.00.

The Contract of lease contained the following stipulation: In case the LESSOR desire or decides to sell the lease
property, the LESSEES shall be given a first priority to purchase the same, all things and considerations being equal.

According to Reynoso, she notified the respondents by registered mail that she was selling the leased premises and
was giving them 30 days from receipt of the letter within which to exercise their right of first priority to purchase the
subject property. She said that in the event that they did not exercise the said right, she would expect them to vacate
the property. Reynoso sent another letter advising them that in view of their failure to exercise their right of first priority,
she had already sold the property. Upon receipt of this letter, respondents wrote Reynoso informing her that neither of
them had received her letter.

The leased premises were formally sold to petitioner Guzman, Bocaling & Co. Reynoso wrote a letter to the respondents
demanding that they vacate the premises within 15 days for their failure to pay the rentals for four months. When they
refuse, Reynoso filed a complaint for ejectment against them.

Ruling: Court has examined the petitioner's contentions and finds them to be untenable.

30
Even if the letter had indeed been sent to and received by the private respondent and they did not exercise their right
of first priority, Reynoso would still be guilty of violating Paragraph 20 of the Contract of Lease which specifically stated
that the private respondents could exercise the right of first priority, "all things and conditions being equal." The Court
reads this mean that there should be identity of the terms and conditions to be offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy the right of first priority.

The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only the mortgage lien of
P100,000.00. On the other hand, the selling price offered to and accepted by the petitioner was only P400,000.00 and
only P137,500.00 was paid in cash while the balance of P272,500.00 was to be paid "when the property (was) cleared
of tenants or occupants.

The fact that the Bonnevies had financial problems at that time was no justification for denying them the first option to
buy the subject property. Even if the Bonnevies could not buy it at the price qouted, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions. Only if the Bonnevies failed to exercise their right of
first priority could Reynoso lawfully sell the subject property to others, and at that only under the same terms and
conditions offered to the Bonnevies. Even if the order of the probate court was valid, the private respondents still had
a right to rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to give them the first
opportunity to purchase the subject property.

The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under Article 1380 to 1381
(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests
that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority
under the Contract of Lease. According to Tolentino, rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid,
by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a
relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferent right created by the contract. Recission implies a
contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation
for reasons of equity.

It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did
not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered

31
a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired
lawfully and in good faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed
a purchaser in good faith for the record shows that its categorically admitted it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of
Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso,
the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right
given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which
Par. 20 is contained.

G.R. No. 144934 January 15, 2004

ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S. RIVERA, petitioners,

vs.
FIDELA DEL ROSARIO, respondent

FACTS: Respondents were the registered owners of a parcel of land situated at Lolomboy, Bulacan.

Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed a Special Power of Attorney3 in favor of their mother
and co-respondent, Fidela, authorizing her to sell, lease, mortgage, transfer and convey their rights over the said lot.
Subsequently, Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the loan, she and
Mariano Rivera agreed to execute a deed of real estate mortgage and an agreement to sell the land.

The Kasunduan provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia and Jose, would
purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price was to be paid in three installments.
It also provided that the Deed of Absolute Sale would be executed only after the second installment is paid and a
postdated check for the last installment is deposited with Fidela. Mariano had already caused the drafting of the Deed

32
of Absolute Sale. But unlike the Kasunduan, the said deed stipulated a purchase price of only P601,160, and covered
a certain Lot No. 1083-A in addition to Lot No. 1083-C.10 This deed, as well as the Kasunduan and the Deed of Real
Estate Mortgage11, was signed by Mariano’s children, petitioners Adelfa, Cynthia and Jose, as buyers and mortgagees,
on March 9, 1987.12

The following day, Mariano Rivera returned to the office of Atty. Barangan, bringing with him the signed documents. He
also brought with him Fidela and her son Oscar del Rosario, so the two may sign the mortgage and the Kasunduan
there.

Although Fidela intended to sign only the Kasunduan and the Real Estate Mortgage, she inadvertently affixed her
signature on all the three documents in the office of Atty. Barangan on the said day. Mariano then gave Fidela the
amount of P250,000. On October 30, 1987, he also gave Fidela a check for P200,000. In the ensuing months, also,
Mariano gave Oscar del Rosario several amounts totaling P67,800 upon the latter’s demand for the payment of the
balance despite Oscar’s lack of authority to receive payments under the Kasunduan.13 While Mariano was making
payments to Oscar, Fidela entrusted the owner’s copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance
with the Kasunduan.

When Mariano unreasonably refused to return the TCT,14 one of the respondents, Carlos del Rosario, caused the
annotation on TCT No. T-50.668 (M) of an Affidavit of Loss of the owner’s duplicate copy of the title. This annotation
was offset, however, when Mariano registered the Deed of Absolute Sale and afterwards caused the annotation of an
Affidavit of Recovery of Title. Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued TCT No. 158443
(M) in the name of petitioners Adelfa, Cynthia and Jose Rivera.15

Meanwhile, the Riveras, representing themselves to be the new owners of Lot No. 1083-C, were also negotiating with
the tenant, Feliciano Nieto, to rid the land of the latter’s tenurial right. When Nieto refused to relinquish his tenurial right
over 9,000 sq. m. of the land, the Riveras offered to give 4,500 sq. m. in exchange for the surrender. Nieto could not
resist and he accepted. Subdivision Plan was then made. Later, it was inscribed on TCT No. 158443 (M), and Lot No.
1083-C was divided into Lots 1083 C-1 and 1083 C-2.16

Feliciano Nieto and the Riveras executed a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari ng Bahagi ng
Isang Lagay na Lupa (Written Abdication of Rights over a Portion of a Parcel of Land). Four days later, they registered
the document with the Registry of Deeds. Two titles were then issued: one in the name of Nieto and TCT No. T-161785
(M) in the name of petitioners Adelfa, Cynthia and Jose Rivera.

33
Respondents filed a complaint19 in the RTC asking that the Kasunduan be rescinded for failure of the Riveras to comply
with its conditions, with damages. Petitioners likewise argued that respondents’ cause of action had been barred by
laches or estoppel.

Petitioners cite Articles 1383,40 138941 and 139142 of the New Civil Code. They submit that the complaint for
rescission of the Kasunduan should have been dismissed, for respondents’ failure to prove that there was no other
legal means available to obtain reparation other than to file a case for rescission, as required by Article 1383. Moreover,
petitioners contend that even assuming respondents had satisfied this requirement, prescription had already set in, the
complaint having been filed in 1992 or five years after the execution of the Deed of Absolute Sale in March 10, 1987.

Respondents counter that Article 1383 of the New Civil Code applies only to rescissible contracts enumerated under
Article 1381 of the same Code, while the cause of action in this case is for rescission of a reciprocal obligation, to which
Article 119143 of the Code applies. They assert that their cause of action had not prescribed because the four-year
prescriptive period is counted from the date of discovery of the fraud, which, in this case, was only in 1992.

RTC ruled in favor of respondents. On appeal to the CA, the trial court’s judgment was AFFIRMED with the
MODIFICATION.

ISSUE:

1. May the contract entered into between the parties be rescinded based on Article 1191?

2. Is the respondents’ cause of action barred by prescription?

HELD: 1. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from
rescission of contracts under Article 1383 of the same Code.

While Article 1191 uses the term rescission, the original term used in Article 1124 of the old Civil Code, from which
Article 1191 was based, was resolution.46 Resolution is a principal action that is based on breach of a party, while
rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the
New Civil Code,47 which expressly enumerates the rescissible contracts.

34
Obviously, the Kasunduan does not fall under any of the situations mentioned in Article 1381. Consequently, Article
1383 is inapplicable. Hence, we rule in favor of the respondents.

A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell, as distinguished from a contract
of sale. 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.48 In a contract to sell, the payment of the purchase price is a positive suspensive condition,49
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.50

Respondents in this case bound themselves to deliver a deed of absolute sale and clean title covering Lot No. 1083-C
after petitioners have made the second installment. This promise to sell was subject to the fulfillment of the suspensive
condition that petitioners pay P750,000 on August 31, 1987, and deposit a postdated check for the third installment of
P1,141,622.50.51 Petitioners, however, failed to complete payment of the second installment. The non-fulfillment of
the condition rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but an
event that prevents the vendor’s obligation to convey title from acquiring binding force.

Hence, the agreement of the parties in the instant case may be set aside, but not because of a breach on the part of
petitioners for failure to complete payment of the second installment. Rather, their failure to do so prevented the
obligation of respondents to convey title from acquiring an obligatory force.

2. Contrary to petitioners’ assertion, we find that prescription has not yet set in. Article 1391 states that the action for
annulment of void contracts shall be brought within four years. This period shall begin from the time the fraud or mistake
is discovered. Here, the fraud was discovered in 1992 and the complaint filed in 1993. Thus, the case is well within the
prescriptive period.

The Deed of Absolute Sale in question is declared NULL and VOID in its entirety.

AIR FRANCE VS CA G.R. No. 76093 March 21, 1989

35
FACTS: Sometime in October 1977, private respondent Narciso Morales thru his representative, Ms. Janet Tolentino,
purchased an airline ticket from Aspac Management Corporation, petitioner's General Sales Agent in Makati, for P
9,426.00 plus P 1,413.90 travel tax, of which P 413.90 were later refunded to Ms. Tolentino.

The itinerary covered by the ticket included several cities, with certain segments thereof restricted by markings of "non
endorsable' and 'valid on AF (meaning Air France) only', as herein specified:

While in New York, U.S.A. private respondent Morales obtained three (3) medical certificates attesting to ear an
infection which necessitated medical treatment. From New York, he flew to Paris, Stockholm and then Copenhagen
where he made representations with petitioner's office to shorten his trip by deleting some of the cities in the itinerary.

Respondent Morales was informed that, as a matter of procedure, confirmation of petitioner's office in Manila (as
ticketing office) must be secured before shortening of the route (already paid for).

Air France in Amsterdam telexed AF Manila requesting for rerouting of the passenger to Amsterdam, Hamburg,
Geneva, Rome, Hongkong, Manila.

As there was no immediate response to the telex, respondent proceeded to Hamburg where he was informed of AF
Manila's negative reply.

After reiterating his need to flying home on a shorter route due to his ear infection, and presentation of supporting
medical certificates, again, the airline office made the necessary request to Manila on 23 November 1977 for a
Hamburg, Paris, Geneva, Rome, Paris, Hongkong and Manila route. Still, the request was denied.

Despite respondent as protest and offer to pay any fare difference, petitioner did not relent in its position. Respondent,
therefore, had to buy an entirely new set of tickets, paying 1,914 German marks for the homeward route

Sometime in December 1977, Respondent arrived in Manila and sent a letter-complaint to Air France thru Aspac
Management Corporation.

Respondent Morales was advised to surrender the unused flight coupons for a refund of its value, but he kept the same
and, instead, filed a complaint for breach of contract of carriage and damages.

CFI Judge Marcelino Sayo found Air France in evident bad faith for violation of the contract of carriage,
aggravated by the threatening attitude of its employees in Hamburg. Considering the social and economic
standing of respondent, who is chairman of the board of directors of a multi-million corporation and a member of several
civic and business organizations. The case was appealed to the CA.

CA: ruled in favor of plaintiff against the defendant.

ISSUE: Whether Air France is guilty of breach of contract of carriage. NO

36
HELD: Air France is not guilty of breach of contract of carriage. The respondent’s court’s ruling that there was a breach
of contract of carriage is premised on petitioner’s refusal to reroute Atty. Morales and in effect requiring him to purchase
a new set of tickets.

International Air Transportation Association (IATA) Resolution No. 275 e, 2., special note reads: "Where a fare is
restricted and such restrictions are not clearly evident from the required entries on the ticket, such restrictions
may be written, stamped or reprinted in plain language in the Endorsement/Restrictions" box of the applicable
flight coupon(s); or attached thereto by use of an appropriate notice." 7 Voluntary changes to tickets, 8 while
allowable, are also covered by (IATA) Resolution No. 1013, Art. II, which provides: "1. changes to the ticket
requested by the passenger will be subject to carriers regulations.

Private respondent wanted a rerouting to Hamburg, Geneva, Rome, Hongkong and Manilas 9 which shortened the
original itinerary on the ticket issued by AF Manila through ASPAC, its general sales agent. Considering the original
restrictions on the ticket, it was not unreasonable for Air France to deny the request.

Besides, a recurring ear infection was pleaded as reason necessitating urgent return to Manila. Assuming arguendo a
worsening pain or discomfort, private respondent appears to have still proceeded to four (4) other cities covering a
period of at least six (6) days and leaving open his date of departure from Hongkong to Manila.10 And, even if he
claimed to have undergone medical examination upon arrival in Manila, no medical certificate was presented. He failed
to even remember his date of arrival in Manila.

With a claim for a large amount of damages, the Court finds it unsual for respondent, a lawyer, to easily forget vital
information to substantiate his plea. It is also essential before an award of damages that the claimant must satisfactorily
prove during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.

Air France employees in Hamburg informed private respondent that his tickets were partly stamped "non-endorsable"
and "valid on Air France only." Mere refusal to accede to the passenger's wishes does not necessarily translate into
damages in the absence of bad faith. To our mind, respondent has failed to show wanton, malevolent or reckless
misconduct imputable to petitioner in its refusal to re-route.

37
38