Civil Law Review II 4th Assignment
59. Camelcraft v. NLRC (1990)
Facts:
Camelcraft Employees Union was registered as a
legitimate labor union, and yet Camelcraft Corp.
refused to recognize it, so the union filed a petition for
certification for election. Shortly thereafter, the
Camelcraft announced that it would close down due to
financial losses, and so it did. Thus, the union filed a
complaint for illegal lockout and unfair labor practices.
The Labor Arbiter and the NLRC ruled in favor of the
union. Camelcraft filed a petition for certiorari, claiming
that the NLRC acted with grave abuse of discretion.
And to shield itself from paying the employees their
unpaid wages, Camelcraft pointed out that the
employees executed a waiver to the effect that the
employees would waive the award granted by the
NLRC, and in exchange, Camelcraft would implement
all benefits under existing labor laws.
Issue: Whether or not the waiver executed by the
employees were valid.
Held: No, because they are contrary to public policy,
pursuant to Art. 1306 of the Civil Code. 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 win not
estop them from asserting them just the same on the
ground that public policy prohibits such waivers.
60. Avon v. Luna (2006)
Facts:
Leticia Luna used to be a supervisor in Beautifront
Inc. until it was acquired by Avon Cosmetics Inc. Luna
then became a supervisor and part of the independent
sales force of Avon after signing a contract which
stipulates, among others, that (1) The Supervisor shall
sell or offer to sell, display or promote only and
exclusively products sold by the Company; and (2)
Either party may terminate this agreement at will, with
or without cause, at any time upon notice to the other.
Later on, Luna was invited and agreed to sell the
products of Sandre Philippines, Inc., a corporation
engaged in direct selling of vitamins and other food
supplements. Knowing that she had a contract with
Avon, Luna consulted a lawyer, who told her that the
two provisions mentioned above are void for being
contrary to public policy.
When Luna told Avon of her lawyers opinion, Avon
terminated its contract with Luna. Thus, Luna sued
Avon for damages.
Luna echoed her counsels opinion, that the two
provisions are contrary to public policy, while Avon
argued that the exclusivity clause was directed against
the supervisors selling other products utilizing their
training and experience, and capitalizing on Avons
existing network for the promotion and sale of the said
products. The exclusivity clause was meant to protect
Avon from other companies, whether competitors or
not, who would exploit the sales and promotions
network already established by Avon at great expense
and effort.
Issue: Whether or not the two provisions of the
contract between Avon and Luna are contrary to public
policy, hence void.
Held: No. Contracts requiring exclusivity are not per se
void. Each contract must be viewed vis--vis all the
circumstances surrounding such agreement in deciding
whether a restrictive practice should be prohibited as
imposing an unreasonable restraint on competition.
The question that now crops up is this, when is a
restraint in trade unreasonable? Authorities are one in
declaring that a restraint in trade is unreasonable when
it is contrary to public policy or public welfare.
Public policy is that principle of the law which holds
that no subject or citizen can lawfully do that which has
a tendency to be injurious to the public or against the
public good. As applied to contracts, in the absence of
express legislation or constitutional prohibition, a court,
in order to declare a contract void as against public
policy, must find that the contract as to the
consideration or thing to be done, has a tendency to
injure the public, is against the public good, or
contravenes some established interests of society, or is
inconsistent with sound policy and good morals, or
tends clearly to undermine the security of individual
rights, whether of personal liability or of private
property.
Applying the preceding principles in this case, the
exclusivity provision in the contract between Avon and
Luna is not contrary to public policy. Such prohibition is
neither directed to eliminate the competition like
Sandr Phils., Inc. nor foreclose new entrants to the
market. In its Memorandum, it admits that the reason
for such exclusion is to safeguard the network that it
has cultivated through the years. Admittedly, both
companies employ the direct selling method in order to
peddle their products. By direct selling, petitioner Avon
and Sandre, the manufacturer, forego the use of a
middleman in selling their products, thus, controlling
the price by which they are to be sold. The limitation
does not affect the public at all. It is only a means by
which petitioner Avon is able to protect its investment.
It was not by chance that Sandr Philippines, Inc.
made respondent Luna one of its Group Franchise
Directors. It doesnt take a genius to realize that by
making her an important part of its distribution arm,
Sandr Philippines, Inc., a newly formed direct-selling
business, would be saving time, effort and money as it
will no longer have to recruit, train and motivate
supervisors and dealers. Respondent Luna, who
learned the tricks of the trade from petitioner Avon, will
do it for them. This is tantamount to unjust enrichment.
Worse, the goodwill established by petitioner Avon
among its loyal customers will be taken advantaged of
by Sandre Philippines, Inc. It is not so hard to imagine
the scenario wherein the sale of Sandr products by
Avon dealers will engender a belief in the minds of
loyal Avon customers that the product that they are
buying had been manufactured by Avon. In other
words, they will be misled into thinking that the Sandr
 Civil Law Review II 4th Assignment
products are in fact Avon products. From the foregoing,
it cannot be said that the purpose of the subject
exclusivity clause is to foreclose the competition, that
is, the entrance of Sandr products in to the market.
Therefore, it cannot be considered void for being
against public policy. How can the protection of ones
property be violative of public policy? Sandr
Philippines, Inc. is still very much free to distribute its
products in the market but it must do so at its own
expense. The exclusivity clause does not in any way
limit its selling opportunities, just the undue use of the
resources of petitioner Avon.
Neither is the termination clause contrary to public
policy. In the case of Petrophil Corporation v. Court of
Appeals, this Court already had the opportunity to
opine that termination or cancellation clauses such as
that subject of the case at bar are legitimate if
exercised in good faith. The facts of said case likewise
involved a termination or cancellation clause that
clearly provided for two ways of terminating the
contract, i.e., with or without cause. The utilization of
one mode will not preclude the use of the other.
Therein, we stated that the finding that the termination
of the contract was "for cause," is immaterial. When
petitioner terminated the contract "without cause," it
was required only to give x x x a 30-day prior written
notice, which it did.
In the case at bar, the termination clause of the
Supervisors Agreement clearly provides for two ways
of terminating and/or canceling the contract. One
mode does not exclude the other. The contract
provided that it can be terminated or cancelled for
cause, it also stated that it can be terminated without
cause, both at any time and after written notice. Thus,
whether or not the termination or cancellation of the
Supervisors Agreement was "for cause," is immaterial.
The only requirement is that of notice to the other
party. When petitioner Avon chose to terminate the
contract, for cause, respondent Luna was duly notified
thereof.
61. Acol v. PCIBank (2006)
Facts:
Manuel Acol was a PCIB credit card holder. On April
19, 1987, he reported to PCIB that he lost his credit
card the previous day, and he was told that his card
would be immediately included in the circular of lost
cards. On April 20, he followed up his report, and he
was told to put into writing the notice of loss and to
submit it, together with the extension cards of his wife
and daughter. The notice was received by PCIB on April
22. On April 21, a day before receiving the written
notice, PCIB issued a special cancellation bulleting
informing its accredited establishments of the loss of
the cards of the enumerated holders, including Acols.
However, someone had already used Acols credit card
on April 19 and 20 to buy commodities worth
P76,067.28.
At first, PCIB agreed to reverse the billings, but it
changed its mind, invoking a certain provision at the
back of the application form which Acol has signed:
Holder's responsibility for all charges made through
the use of the card shall continue until the expiration or
its return to the Card Issuer or until a reasonable time
after receipt by the Card Issuer of written notice of loss
of the Card and its actual inclusion in the Cancellation
Bulletin.
PCIB filed a collection suit against Acol.
Issue: Whether or not the provision cited above was
valid.
Held: No. The Court has previously ruled in Ermitano v.
CA 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 memberestablishments, 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 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 stipulation in question is just as
repugnant to public policy as that in Ermitao. As
petitioner points out, 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 Code10 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.
62. Piltel v. Tecson (2004)
Facts:
On various dates in 1996, Delfino C. Tecson applied
for six (6) cellular phone subscriptions with petitioner
Pilipino Telephone Corporation (PILTEL), a company
engaged in the telecommunications business, which
applications were each approved and covered,
respectively, by six mobiline service agreements. On
 Civil Law Review II 4th Assignment
05 April 2001, respondent filed with the Regional Trial
Court of Iligan City, Lanao Del Norte, a complaint
against petitioner for a Sum of Money and Damages.
Petitioner moved for the dismissal of the complaint on
the ground of improper venue, citing a common
provision in the mobiline service agreements to the
effect that: Venue of all suits arising from this
Agreement or any other suit directly or indirectly
arising from the relationship between PILTEL and
subscriber shall be in the proper courts of Makati,
Metro Manila. Subscriber hereby expressly waives any
other venues.
The RTC and CA denied petitioners motion to
dismiss, with the CA noting that since the subscription
agreement was a mere contract of adhesion, it does
not bind respondent on the venue stipulation.
Issue: Whether or not the venue stipulation binds
respondent.
Held: Yes. Indeed, the contract herein involved is a
contract of adhesion. But such an agreement is not per
se inefficacious. The rule instead is that, should there
be ambiguities in a contract of adhesion, such
ambiguities are to be construed against the party that
prepared it. If, however, the stipulations are not
obscure, but are clear and leave no doubt on the
intention of the parties, the literal meaning of its
stipulations must be held controlling. A contract of
adhesion is just as binding as ordinary contracts. It is
true that this Court has, on occasion, struck down such
contracts as being assailable when the weaker party is
left with no choice by the dominant bargaining party
and is thus completely deprived of an opportunity to
bargain effectively. Nevertheless, contracts of adhesion
are not prohibited even as the courts remain careful in
scrutinizing the factual circumstances underlying each
case to determine the respective claims of contending
parties on their efficacy.
In the case at bar, respondent secured six (6)
subscription contracts for cellular phones on various
dates. It would be difficult to assume that, during each
of those times, respondent had no sufficient
opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent
continued, in fact, to acquire in the pursuit of his
business subsequent subscriptions and remained a
subscriber of petitioner for quite some time.
In Development Bank of the Philippines vs. National
Merchandising Corporation, the contracting parties,
being of age and businessmen of experience, were
presumed to have acted with due care and to have
signed the assailed documents with full knowledge of
their import. The situation would be no less true than
that which obtains in the instant suit. The
circumstances in Sweet Lines, Inc. vs. Teves, wherein
this Court invalidated the venue stipulation contained
in the passage ticket, would appear to be rather
peculiar to that case. There, the Court took note of an
acute shortage in inter-island vessels that left
passengers literally scrambling to secure
accommodations and tickets from crowded and
congested counters. Hardly, therefore, were the
passengers accorded a real opportunity to examine the
fine prints contained in the tickets, let alone reject
them. A contract duly executed is the law between the
parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no
exception.
63. PNB v. Padilla (1991)
Facts:
Ambrosio Padilla obtained a loan from PNB of P1.8
million secured by a real estate mortgage for a term of
2 years with 18% interest per annum. The promissory
notes executed by Padilla uniformly authorized the PNB
to increase the stipulated 18% interest per annum
within the limits allowed by law. As Padilla was paying
his amortizations, PNB has kept on increasing the
interest rate: from 18% to 32%; from 32% to 41%; and
from 41% to 48%. PNB invoked its board resolutions to
justify the increases.
Later on, Padilla filed a complaint with the RTC
against PNB praying that the court declare the
unilateral increase of interest rates to be invalid, and
that the excess of interest payment collected by PNB
by debiting Padillas current account be refunded or
credited to his current account.
The RTC and the CA ruled in favor of Padilla.
Issue: Whether or not PNBs unilateral increase of the
interest rates was valid.
Held: No. Escalation clauses to be valid should
specifically provide: (1) that there can be an increase
in interest if increased by law or by the Monetary
Board; and (2) in order for such stipulation to be valid,
it must include a provision for reduction of the
stipulated interest in the event that the applicable
maximum rate of interest is reduced by law or by the
Monetary Board.
In this case, PNB relied on its own board
resolutions, which are neither laws nor resolutions of
the Monetary Board.
Moreover, Art. 1308 provides: 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 v. 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 partys (the debtor) participation
being reduced to the alternative "to take it or leave it"
(Qua v. 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
 Civil Law Review II 4th Assignment
and imposition. PNBS successive increases of the
interest rate on the private respondents loan, over the
latters 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."
64. MIAA v. Ding Velayo Sports Center, Inc.
(2011)
Facts:
In 1967, MIAA (then called the Civil Aeronautics
Admistration) and Salem Investment Corporation
(Salem) entered into a contract of lease whereby MIAA
leased in favor of Salem a parcel of land in front of the
Manila International Airport in Pasay City. The purpose
of the lease was to enable Salem to develop the
subject land which was an eyesore to the airport
premises. The contract of lease was for 25 years. In
1974, Salem transferred its lease rights in favor of Ding
Velayo Export Corporation. Thereafter, MIAA and
Velayo entered into a new contract, which contained
the following provisions:
Par. 5: That the LESSEE shall pay to the LESSOR as
monthly rentals for the leased premises the rate of
P0.45 per square meter for the first 300 square
meters, P0.30 per square meter for the next 500
square meters, and P0.25 per square meter for the
remaining area pursuant to Part VIII, Section 4 of
Administrative Order No. 4, Series of 1970, which in
the case of the 8,481 square meters herein leased
shall amount to P2,205.25 per month, or a royalty
equivalent to one percent (1%) of the monthly gross
income of the LESSEE, whichever is higher.
Par. 13: If, during the lifetime of this agreement and
upon approval by the LESSOR, the leased area is
increased or diminished, or the LESSEE is relocated to
another area, rentals, fees, and charges imposed shall
be amended accordingly. Subsequent amendments to
the Administrative Order which will affect an increase
of the rates of fees, charges and rentals agreed upon
in this contract shall automatically amend this
contract to the extent that the rates of fees, rentals,
and charges are increased.
Par. 17: The LESSEE, if desirous of continuing his
lease, should notify the LESSOR sixty (60) days prior
to expiration of the period agreed upon for the
renewal of the Contract of Lease.
Petitioner eventually issued Administrative Order
(AO) No. 4, series of 1982, and AO No. 1, series of
1984, fixing various rates for the lease rentals of its
properties. AO No. 4, series of 1982, and AO No. 1,
series of 1984, allegedly effected an increase in the
lease rental of respondent for the subject property, as
provided for in paragraph 13 of the Contract of Lease
dated May 14, 1976 between petitioner and
respondent.
MIAA increased the amount of rent by 2,000%.
Eventually, Velayo could not pay, and when it asked
MIAA for the renewal of the lease contract, the latter
refused and told Velayo, which peaceably agreed. But
when the president of Velayo was replaced, it reneged
on its agreement to vacate. Instead, it insisted on
renewing the contract with MIAA.
Velayo filed an action for injunction, consignation
and damages against MIAA. The RTC and the CA ruled
in favor of Velayo.
MIAA argued that the renewal of the Contract of
Lease cannot be made to depend on the sole will of
Velayo for the same would then be void for being a
potestative condition.
Issue: Whether or not the renewal clause was void.
Held: No. Article 1308 of the Civil Code expresses what
is known in law as the principle of mutuality of
contracts. It provides that "the contract must bind both
the contracting parties; its validity or compliance
cannot be left to the will of one of them."
An express agreement which gives the lessee the
sole option to renew the lease is frequent and subject
to statutory restrictions, valid and binding on the
parties. This option, which is provided in the same
lease agreement, is fundamentally part of the
consideration in the contract and is no different from
any other provision of the lease carrying an
undertaking on the part of the lessor to act conditioned
on the performance by the lessee. It is a purely
executory contract and at most confers a right to
obtain a renewal if there is compliance with the
conditions on which the right is made to depend. The
right of renewal constitutes a part of the lessee's
interest in the land and forms a substantial and
integral part of the agreement. The fact that such
option is binding only on the lessor and can be
exercised only by the lessee does not render it void for
lack of mutuality. After all, the lessor is free to give or
not to give the option to the lessee.
Paragraph 17 of the Contract of Lease dated May
14, 1976 between petitioner and respondent solely
granted to respondent the option of renewing the lease
of the subject property, the only express requirement
was for respondent to notify petitioner of its decision to
renew the lease within 60 days prior to the expiration
of the original lease term. It has not been disputed that
said Contract of Lease was willingly and knowingly
entered into by petitioner and respondent. Thus,
petitioner freely consented to giving respondent the
exclusive right to choose whether or not to renew the
lease. As we stated in Allied Banking, the right of
renewal constitutes a part of the interest of
respondent, as lessee, in the subject property, and
forms a substantial and integral part of the lease
agreement with petitioner. Records show that
respondent had duly complied with the only condition
for renewal under Section 17 of the Contract of Lease
by notifying petitioner 60 days prior to the expiration of
said Contract that it chooses to renew the lease. We
cannot now allow petitioner to arbitrarily deny
respondent of said right after having previously agreed
to the grant of the same.
Equally unmeritorious is the assertion of petitioner
that paragraph 17 of the Contract of Lease dated May
14, 1976 merely provides a procedural basis for a
negotiation for renewal of the lease and the terms
thereof. The exercise by respondent of its option to
 Civil Law Review II 4th Assignment
renew the lease need no longer be subject to
negotiations.
Just as the RTC adjudged, no fault could be
attributed to respondent for deficient payment of lease
rentals. Lease rentals were based on either the rates
fixed by AO No. 4, series of 1970, or 1% of the monthly
gross income of respondent, whichever is higher. At the
very beginning of the lease, respondent had been
paying monthly lease rentals based on the rates fixed
by AO No. 4, series of 1970, which amounted to
P2,205.25 per month. When requested, respondent
submitted to petitioner its gross income statements, so
petitioner could very well compute the 1% royalty.
However, petitioner continued to charge respondent
only P2,205.25 monthly lease rental, which the latter
faithfully paid. Petitioner later demanded an increase in
lease rentals based on subsequent administrative
issuances raising the rates for the rental of its
properties. But the RTC found that the adverted
administrative orders were not published in full, thus,
the same were legally invalid within the context of
Article 2 of the Civil Code which provides that [l]aws
shall take effect after fifteen days following the
completion of their publication in the Official Gazette,
unless it is otherwise provided. x x x In Taada v.
Tuvera,we enunciated that publication is indispensable
in order that all statutes, including administrative rules
that are intended to enforce or implement existing
laws, attain binding force and effect, to wit: We hold
therefore that all statutes, including those of local
application and private laws, shall be published as a
condition for their effectivity, which shall begin fifteen
days after publication unless a different effectivity date
is fixed by the legislature.
65. DKC Holdings Corporation v. CA (2000)
Facts:
DKC Holdings entered into a contract of lease with
option to buy with Encarnacion Bartolome over a
14,021 square meter land in Valenzuela, Metro Manila.
DKC regularly paid the monthly rental of P3,000 to
Encarnacio until her death. Thereafter, DKC coursed its
payment to Encarnacions son and sole heir, Victor.
However, Victor refused to accept these payments and
altogether refused to deal with DKC. Hence, DKC filed a
complaint for specific performance and damages
against Victor and the Register of Deeds who refused
to register and annotate the contract with Encarnacion
on Victors title over the property. The RTC and CA
ruled in favor of Victor.
Issue: Whether or not Victor is bound by the contract
entered into between DKC and Encarnacion.
Ruling: Yes. The general rule, therefore, is that heirs
are bound by contracts entered into by their
predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
In the case at bar, there is neither contractual
stipulation nor legal provision making the rights and
obligations under the contract intransmissible. More
importantly, the nature of the rights and obligations
therein are, by their nature, transmissible.
It has also been held that a good measure for
determining whether a contract terminates upon the
death of one of the parties is whether it is of such a
character that it may be performed by the promissors
personal representative. Contracts to perform personal
acts which cannot be as well performed by others are
discharged by the death of the promissor. Conversely,
where the service or act is of such a character that it
may as well be performed by another, or where the
contract, by its terms, shows that performance by
others was contemplated, death does not terminate
the contract or excuse nonperformance.
In the case at bar, there is no personal act required
from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver
possession of the subject property to petitioner upon
the exercise by the latter of its option to lease the
same may very well be performed by her heir Victor. It
is futile for Victor to insist that he is not a party to the
contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion,
there is privity of interest between him and his
deceased mother. He only succeeds to what rights his
mother had and what is valid and binding against her is
also valid and binding as against him.
In the case at bar, the subject matter of the
contract is likewise a lease, which is a property right.
The death of a party does not excuse nonperformance
of a contract which involves a property right, and the
rights and obligations thereunder pass to the personal
representatives of the deceased. Similarly,
nonperformance is not excused by the death of the
party when the other party has a property interest in
the subject matter of the contract. Under both Article
1311 of the Civil Code and jurisprudence, therefore,
Victor is bound by the subject Contract of Lease with
Option to Buy.
66. Tanay Recreation Center and Development
Corp. v. Fausto (2005)
Facts:
Petitioner TRCDC was the lessee of a parcel of land
in Tanay owned by Catalina Fausto under a contract of
lease, the term of which is 20 years, subject to renewal
within 60 days prior to its expiration. The contract also
granted TRCDC the right of first refusal.
Later on, when TRCDC wrote Catalina a letter
informing her of its intention to renew the lease
contract, it was her daughter, Anunciacion Fausto
Pacunayen who replied. Anunciacion said that she was
now the absolute owner of the property and asked
TRCDC to vacate the property. Catalina earlier sold the
land to Anunciacion.
TRCDC filed a complaint for annulment of deed of
sale and specific performance. In her answer,
Anunciacion claimed that TRCDC is estopped from
assailing the validity of the deed of sale, because the
latter acknowledge her ownership when it merely
asked for a renewal of the lease. According to her,
when they met to discuss the matter, TRCDC did not
demand for the exercise of its option to purchase the
property.
 Civil Law Review II 4th Assignment
The RTC ruled in favor of Catalina. The CA affirmed,
noting that the right of first refusal granted to TRCDC
applied only in case the property were to be sold to
strangers and not to Catalinas relatives. The CA also
ruled that it would be useless to annul the sale
between Catalina and Anunciacion, because the
property would still remain with the latter after the
death of her mother by virtue of succession.
Issue: Whether or not the rulings of the CA are correct.
Held: No. It was erroneous for the CA to rule that the
right of first refusal does not apply when the property
is sold to Faustos relative. 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 Faustos kin.
The prevailing doctrine therefore, is that a right of first
refusal means identity of terms and conditions to be
offered to the lessee and all other prospective buyers
and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
The prevailing doctrine therefore, is that a right of
first refusal means ideIt 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 Faustos heir.tity of terms and conditions to be
offered to the lessee and all other prospective buyers
and a contract of sale entered into in violation of a
right of first refusal of another person, while valid, is
rescissible.
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
Faustos 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:
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.
67. Gilchrist v. Cuddy (1915)
Facts:
Cuddy was the owner of the film Zigomar, and he
agreed to rent it to Gilchrist, an owner of a theater in
Iloilo for P125. But Cuddy later on cancelled its contract
with Gilchrist, when he found, Espejo, another theater
owner, willing to pay more (P350). Thus, Gilchrist filed
an action for injunction against Cuddy and Espejo.
It was established that Espejo knowlingly induced
Cuddy to violate his contract with another person. But
there is no proof that Espejo knew the identity of
Gilchrist. Espejos theory is that he could not be liable
for contractual interference, because the fact that he
did not know Gilchrist negates malice on his part.
Issue: Whether or not Espejo is liable for contractual
interference.
Held: Yes. It is said that the ground on which the
liability of a third party for interfering with a contract
between others rests, is that the interference was
malicious. The contrary view, however, is taken by the
Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive
for interference by the third party in that case was the
desire to make a profit to the injury of one of the
parties of the contract. There was no malice in the case
beyond the desire to make an unlawful gain to the
detriment of one of the contracting parties. In the case
at bar the only motive for the interference with the
Gilchrist Cuddy contract on the part of the
appellants was a desire to make a profit by exhibiting
the film in their theater. There was no malice beyond
this desire; but this fact does not relieve them of the
legal liability for interfering with that contract and
causing its breach. It is, therefore, clear, under the
above authorities, that they were liable to Gilchrist for
the damages caused by their acts, unless they are
relieved from such liability by reason of the fact that
they did not know at the time the identity of the
original lessee (Gilchrist) of the film.1
68. Montecillo v. Reynes (2002)
1 Espejo was made liable on the basis of Art. 1902 of the Old
Civil Code. It is the equivalent of Art. 19 of the New Civil Code.
 Civil Law Review II 4th Assignment
Facts:
Ignacia Reynes sold a parcel of land to Rido Montecillo.
In their Deed of Sale, it was stated therein that for
an in consideration of P47,000 to me in hand paid by
Rido Montecillo In other words, at the time of the
execution of the Deed of Sale, Montecillo supposedly
had already paid Reynes. But it turns out that
Montecillo never paid Reynes. Thus, Reynes revoked
her sale with Montecillo and sold the land again to
Spouses Abucay. But later on, Reynes found out that a
certificate of title was issued in favor of Montecillo.
Reynes and Spouses Abucay filed an action for
declaration of nullity and quiting of title against
Montecillo. They argued that there was no meeting of
the minds between Reynes and Montecillo for lack of
consideration. On the other hand, Montecillo claimed
that the consideration for the sale was the amount he
paid to Cebu Ice Storage Corporation for the
mortgaged debt of Bienvenido Jayag which constituted
a lien on the subject parcel of land.
The RTC and the CA ruled in favor of Reynes.
Issue: Whether or not there was a valid sale.
Held: No. The Supreme Court first discussed the
manner of payment of the P47,000 purchase price.
Montecillos payment to Cebu Ice Storage is not the
payment that would extinguish[16]Montecillos
obligation to Reynes under the Deed of Sale. It
militates against common sense for Reynes to sell her
Mabolo Lot for P47,000.00 if this entire amount would
only go to Cebu Ice Storage, leaving not a single
centavo to her for giving up ownership of a valuable
property. This incredible allegation of Montecillo
becomes even more absurd when one considers that
Reynes did not benefit, directly or indirectly, from the
payment of the P47,000.00 to Cebu Ice Storage.
Ignacia Reynes was not a party to nor privy of the
obligation in favor of the Cebu Ice and Cold Storage
Corporation, the obligation being exclusively of
Bienvenido Jayag and wife who mortgaged their
residential house constructed on the land subject
matter of the complaint. The payment by the
defendant to release the residential house from the
mortgage is a matter between him and Jayag and
cannot by implication or deception be made to appear
as an encumbrance upon the land. Thus, Montecillos
payment to Jayags creditor could not possibly redound
to the benefit of Reynes.
Under Article 1318 of the Civil Code, [T]here is no
contract unless the following requisites concur: (1)
Consent of the contracting parties; (2) Object certain
which is the subject matter of the contract; (3) Cause
of the obligation which is established. Article 1352 of
the Civil Code also provides that [C]ontracts without
cause x x x produce no effect whatsoever.
Montecillo argues there is only a breach of his
obligation to pay the full purchase price on time.Such
breach merely gives Reynes a right to ask for specific
performance, or for annulment of the obligation to sell
the Mabolo Lot. These arguments are not persuasive.
This is not merely a case of failure to pay the
purchase price, as Montecillo claims, which can only
amount to a breach of obligation with rescission as the
proper remedy. What we have here is a purported
contract that lacks a cause - one of the three essential
requisites of a valid contract. Failure to pay the
consideration is different from lack of consideration.
The former results in a right to demand the fulfillment
or cancellation of the obligation under an existing valid
contract while the latter prevents the existence of a
valid contract Where the deed of sale states that the
purchase price has been paid but in fact has never
been paid, the deed of sale is null and void ab initio for
lack of consideration.
Reynes expected Montecillo to pay him directly the
P47,000.00 purchase price within one month after the
signing of the Deed of Sale. On the other hand,
Montecillo thought that his agreement with Reynes
required him to pay the P47,000.00 purchase price to
Cebu Ice Storage to settle Jayags mortgage debt.
Montecillo also acknowledged a balance of P10,000.00
in favor of Reynes although this amount is not stated in
Montecillos Deed of Sale. Thus, there was no consent,
or meeting of the minds, between Reynes and
Montecillo on the manner of payment. This prevented
the existence of a valid contract because of lack of
consent. In summary, Montecillos Deed of Sale is null
and void ab initio not only for lack of consideration, but
also for lack of consent. The cancellation of TCT No.
90805 in the name of Montecillo is in order as there
was no valid contract transferring ownership of the
Mabolo Lot from Reynes to Montecillo.
69. Francisco v. Herrera (2002)
Facts:
Eligio Herrera was the owner of two parcels of land
in Cainta. Eligio sold those lands to Julian Francisco. At
the time of the sale, Eligio was already afflicted with
senile dementia, characterized by deteriorating mental
and physical condition, including memory loss.
Meanwhile, the heirs of Herrera found the contract
price for the two lands to be grossly inadequate, so
they negotiated with Francisco to increase the
purchase price, but he refused. Thus, the heirs of
Francisco filed a complaint for annulment of sale
against Francisco.
The Herrera heirs contended that the contract was
void, while Francisco argued that the contract was
voidable and was ratified when the heirs accepted the
purchase price on behalf of their father.
Issue: Is the sale between Eligio Herrera and Julian
Francisco voidable or void? If it is voidable, was there
ratification?
Held: Voidable. Article 1327 provides that insane or
demented persons cannot give consent to a contract.
But, if an insane or demented person does enter into a
contract, the legal effect is that the contract is voidable
or annullable as specifically provided in Article 1390. In
the present case, it was established that the vendor
Eligio, Sr. entered into an agreement with petitioner,
but that the formers capacity to consent was vitiated
by senile dementia. Hence, we must rule that the
assailed contracts are not void or inexistent per se;
rather, these are contracts that are valid and binding
 Civil Law Review II 4th Assignment
unless annulled through a proper action filed in court
seasonably.
An annullable contract may be rendered perfectly
valid by ratification, which can be express or implied.
Implied ratification may take the form of accepting and
retaining the benefits of a contract. This is what
happened in this case. Respondents contention that he
merely received payments on behalf of his father
merely to avoid their misuse and that he did not intend
to concur with the contracts is unconvincing. If he was
not agreeable with the contracts, he could have
prevented petitioner from delivering the payments, or
if this was impossible, he could have immediately
instituted the action for reconveyance and have the
payments consigned with the court. None of these
happened. As found by the trial court and the Court of
Appeals, upon learning of the sale, respondent
negotiated for the increase of the purchase price while
receiving the installment payments. It was only when
respondent failed to convince petitioner to increase the
price that the former instituted the complaint for
reconveyance of the properties. Clearly, respondent
was agreeable to the contracts, only he wanted to get
more. Further, there is no showing that respondent
returned the payments or made an offer to do so. This
bolsters the view that indeed there was ratification.
One cannot negotiate for an increase in the price in
one breath and in the same breath contend that the
contract of sale is void.
70. Coronel v. Constantino (2003)
Facts:
The subject property consists of two parcels of land
in Hagonoy, Bulacan. The property is originally owned
by Honoria Aguinaldo. One-half of it was inherited by:
(1) Emilia together with her sons (2) Benjamin, (3)
Catalino and Ceferino. The other half was inherited by:
(a) Florentino and (b) Aurea.
Florentino and Aurea filed a complaint for
declaration of ownership and quieting of title against
Emilia and Benjamin. The complaint alleged that Emilia
and her sons sold their parcel of land to third persons,
and those third persons sold the same land to
Florentino and Aurea.
The RTC and the CA ruled in favor of the plaintiffs.
A careful reading of the Kasulatan ng Bilihang
Patuluyan which is a private document, not having
been duly notarized, shows that only the share of
Emilia in the subject property was sold because
Benjamin did not sign the document and the shares of
Ceferino and Catalino were not subject of the sale. But
the CA ruled that through their inaction and silence,
the three sons of Emilia are considered to have ratified
the aforesaid sale of the subject property by their
mother.
Issue: Whether or not Benjamin, Ceferino and Catelino
are deemed to have ratified the sale made by their
mother, Emilia.
Held: No. Art. 1317 of the Civil Code provides: 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. A contract entered into in the name
of another by one who has no authority or legal
representation or who has acted beyond his powers
shall be 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.
Ratification means that one under no disability
voluntarily adopts and gives sanction to some
unauthorized act or defective proceeding, which
without his sanction would not be binding on him. It is
this voluntary choice, knowingly made, which amounts
to a ratification of what was theretofore unauthorized,
and becomes the authorized act of the party so making
the ratification.
No evidence was presented to show that the three
brothers were aware of the sale made by their mother.
Unaware of such sale, Catalino, Ceferino and Benjamin
could not be considered as having voluntarily remained
silent and knowingly chose not to file an action for the
annulment of the sale. Their alleged silence and
inaction may not be interpreted as an act of ratification
on their part.
The sale is valid insofar as the share of petitioner
Emilia Meking Vda. de Coronel is concerned. The due
execution of the Kasulatan ng Bilihang Patuluyan was
duly established when petitioners, through their
counsel, admitted during the pre-trial conference that
the said document was signed by Emilia.[12] While
petitioners claim that Emilia erroneously signed it
under the impression that it was a contract of
mortgage and not of sale, no competent evidence was
presented to prove such allegation. Hence, Jess C.
Santos and Priscilla Bernardo, who purchased the share
of Emilia, became co-owners of the subject property
together with Benjamin and the heirs of Ceferino and
Catalino. As such, Santos and Bernardo could validly
dispose of that portion of the subject property
pertaining to Emilia in favor of herein private
respondents Constantino and Buensuceso. However,
the particular portions properly pertaining to each of
the coowners are not yet defined and determined as no
partition in the proper forum or extrajudicial settlement
among the parties has been effected among the
parties. Consequently, the prayer of respondents for a
mandatory or prohibitory injunction lacks merit.
71. Laudico and Harden v. Arias (1922)
Facts:
Vicente Arias owned a building on Carriedo Street.
He wrote a letter to Mamerto Laudico giving him an
option to lease the building to a third person. Later on,
Laudico presented Fred Harden as the party desiring to
lease the building. Thus, Laudico wrote a letter to Arias
advising him that he accepts his proposal. This letter
was received by Arias at 2:53 PM. But on that same
day at 11:25 am, Laudico received a letter from Arias
withdrawing his offer to lease the building. Laudico
thus sued Arias for specific performance.
Issue: Whether or not a contract was perfected
between Arias and Laudico.
 Civil Law Review II 4th Assignment
Held: No. 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. Under these facts we
believe that no contract was perfected between the
plaintiffs and the defendants.
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 not yet 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.
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.
72. Villanueva v. CA (1995)
Facts:
The two subject lots were owned by Spouses
Celestino and Miguela Villanueva. Miguela sought the
help Jose Viudez, an OIC of the Philippine Veterans
Bank Makati if she could obtain a loan from the bank.
Viudez instructed her to surrender the titles of the lots
as collaterals and to execute a deed of sale covering
the two parcels of land, which she did but without the
signature of her husband. Later on, she was surprised
to learn that a new certificate of title was issued in
favor of PVB but she did not obtain any loan.
The two lots were about to be sold at auction. A
certain Idelfonso Ong offered to buy the lands, but in
the meantime he went abroad. While Ong was still out
of the country, it turned out that PVB approved his
offer. But when Ong came back, PVB became insolvent
and was now under the control of the Central Bank.
Meanwhile, Miguela filed her claim over the lands with
the liquidation court.
The RTC, acting as liquidation court, ruled in favor
of Miguela, but the CA reversed.
Issue: Whether or not Ong is entitled to the lots on the
basis of PVBs previous approval of his offer.
Held: No. There is no doubt that the approval of Ong's
offer constitutes an acceptance, the effect of which is
to perfect the contract of sale upon notice thereof to
Ong. 29 The peculiar circumstances in this case,
however, pose a legal obstacle to his claim of a better
right and deny support to the conclusion of the Court of
Appeals. Ong did not receive any notice of the approval
of his offer. It was only sometime in mid-April 1985
when he returned from the United States and inquired
about the status of his bid that he came to know of the
approval. It must be recalled that the PVB was placed
under receivership pursuant to the MB Resolution of 3
April 1985 after a finding that it was insolvent, illiquid,
and could not operate profitably, and that its
continuance in business would involve probable loss to
its depositors and creditors. The PVB was then
prohibited from doing business in the Philippines, and
the receiver appointed was directed to "immediately
take charge of its assets and liabilities, as expeditiously
as possible collect and gather all the assets and
administer the same for the benefit of its creditors,
exercising all the powers necessary for these purposes.
Under Article 1323 of the Civil Code, an offer
becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that:
The contract is not perfected except by the
concurrence of two wills which exist and continue until
the moment that they occur. The contract is not yet
perfected at any time before acceptance is conveyed;
hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie
from being formed.
In a nutshell, the insolvency of a bank and the
consequent appointment of a receiver restrict the
bank's capacity to act, especially in relation to its
property, Applying Article 1323 of the Civil Code, Ong's
offer to purchase the subject lots became ineffective
because the PVB became insolvent before the bank's
acceptance of the offer came to his knowledge. Hence,
the purported contract of sale between them did not
reach the stage of perfection. Corollarily, he cannot
invoke the resolution of the bank approving his bid as
basis for his alleged right to buy the disputed
properties.
Nor may the acceptance by an employee of the
PVB of Ong's payment of P100,000.00 benefit him
since the receipt of the payment was made subject to
the approval by the Central Bank liquidator of the PVB.
73. Adelfa Properties, Inc. v. CA (1995)
Facts:
Private respondents and their brothers Jose and
Dominador were the registered CO-OWNERS of a parcel
of land in Las Pinas, covered by a TCT. Jose and
Dominador sold their share (eastern portion of the
land) to Adelfa. Thereafter, Adelfa expressed interest in
buying the western portion of the property from private
respondents herein. Accordingly, an exclusive Option
to Purchase was executed between Adelfa and Private
respondents and an option money of 50,000 was given
to the latter. A new owners copy of the certificate of
title was issued (as the copy with respondent Salud
 Civil Law Review II 4th Assignment
was lost) was issued but was kept by Adelfas counsel,
Atty. Bernardo.
Before Adelfa could make payments, it received
summons as a case was filed (RTC Makati) against Jose
and Dominador and Adelfa, because of a complaint in a
civil case by the nephews and nieces of private
respondents herein. As a consequence, Adelfa, through
a letter, informed the private respondents that it would
hold payment of the full purchase price and suggested
that they settle the case with their said nephews and
nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are
canceling the transaction. Atty Bernardo made offers
but they were all rejected.
RTC Makati dismissed the civil case. A few days
after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel
of land. Atty Bernardo wrote private respondents
informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and
requested that the corresponding deed of Absolute
Sale be executed. This was ignored by private
respondents. Private respondents sent a letter to
Adelfa enclosing therein a check representing the
refund of half the option money paid under the
exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa
failed to surrender the certificate of title, hence the
private respondents filed a civil case before the RTC
Pasay, for annulment of contract with damages. The
trial court directed the cancellation of the exclusive
option to purchase. On appeal, respondent CA affirmed
in toto the decision of the RTC hence this petition.
Issue: Whether or not the agreement between Adelfa
and private respondents was strictly an option
contract.
Held: No, it was a contract to sell. The test in
determining whether a contract is a contract of sale or
purchase or a mere option is whether or not the
agreement could be specifically enforced. There is no
doubt that the obligation of petitioner to pay the
purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private
respondents chosen to enforce the contract, they could
have specifically compelled petitioner to pay the
balance. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance
with which could legally and definitely be demanded
from petitioner as a consequence. While there is
jurisprudence to the effect that a contract which
provides that the initial payment shall be totally
forfeited in case of default in payment is to be
considered as an option contract, still we are not
inclined to conform with the findings of respondent
court and the court a quo that the contract executed
between the parties is an option contract, for the
reason that the parties were already contemplating the
payment of the balance of the purchase price, and
were not merely quoting an agreed value for the
property. The term balance, connotes a remainder or
something remaining from the original total sum
already agreed upon. In other words, the alleged option
money was actually earnest money which was
intended to form part of the purchase price. The
amount was not distinct from the cause or
consideration for the sale of the property, but was itself
a part thereof. It is a statutory rule that whenever
earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance
payment and must, therefore, be deducted from the
total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest
money and option money, viz.: (a) earnest money is
part of the purchase price, while option money ids the
money given as a distinct consideration for an option
contract; (b) earnest money is given only where there
is already a sale, while option money applies to a sale
not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is not
required to buy. The aforequoted characteristics of
earnest money are apparent in the so-called option
contract under review, even though it was called
option money by the parties. In addition, private
respondents failed to show that the payment of the
balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the
exercise of the right to buy. On the contrary, it has
been sufficiently established that such payment was
but an element of the performance of petitioners
obligation under the contract to sell.
Since the contract was that of to sell, Art. 1590
applies in this case. It provides: Should the vendee be
disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear
such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment
of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or
it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.
The private respondents may no longer be
compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioners failure to
duly effect the consignation of the purchase price after
the disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by
private respondents. The mere sending of a letter by
the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid
tender of payment. Besides, a mere tender of payment
is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to
extinguish petitioners obligation to pay the balance of
the purchase price. The rule is different in case of an
option contract or in legal redemption or in a sale with
right to repurchase, wherein consignation is not
necessary because these cases involve an exercise of a
right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of
payment would be sufficient to preserve the right or
 Civil Law Review II 4th Assignment
privilege. This is because the provisions on
consignation are not applicable when there is no
obligation to pay. A contract to sell, as in the case
before us, involves the performance of an obligation,
not merely the exercise of a privilege of a right.
Consequently, performance or payment may be
effected not by tender of payment alone but by both
tender and consignation. Furthermore, petitioner no
longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case
filed against it. Necessarily, therefore, its obligation to
pay the balance again arose and resumed after it
received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment. By
reason of petitioners failure to comply with its
obligation, private respondents elected to resort to and
did announce the rescission of the contract through its
letter to petitioner. That written notice of rescission is
deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either
by judicial action or notarial act is not applicable to a
contract to sell. Furthermore, judicial action for
rescission of a contract is not necessary where the
contract provides for automatic rescission in case of
breach, as in the contract involved in the present
controversy. In the case at bar, it has been shown that
although petitioner was duly furnished and did receive
a written notice of rescission which specified the
grounds therefore, it failed to reply thereto or protest
against it. By such cavalier disregard, it has been
effectively estopped from seeking the affirmative relief
it now desires but which it had theretofore disdained.
74. Serra v. CA (1994)
Facts:
In 1975, a Lease Contract with Option to Buy was
executed between Federico Serra and the Rizal
Commercial Banking Corporation (RCBC). It was agreed
that Serra shall lease to RCBC his land from the year
1975 to 2000. It was also agreed that within 10 years
from 1975, RCBC shall exercise an option whether or
not to buy the said lot at a price not exceeding P210.00
per square meter. However, no option money was
provided for in the contract hence, RCBC did not pay
any option money for the exercise of such option to
buy. What was provided, however, was a clause which
states that in case RCBC fails to exercise such option to
buy, it shall forfeit all improvements it made (or will
make) on said land in favor of Serra. In 1984, RCBC
communicated to Serra that it now wants to buy the
said land. Serra however refused. RCBC sued Serra.
Serra now contends that the option to buy was
ineffective because it was not supported by any
consideration distinct from the price hence, it is not
binding upon him.
Issue: Whether or not there was a consideration
distinct from the purchase price in this case.
Held: Yes. The Supreme Court ruled that in this case,
the consideration which is distinct from the price was
the agreement in the contract which stated that if
RCBC fails to exercise its option to buy, it shall transfer
all improvements made on the land [by RCBC] in favor
of Serra. Such is an agreement more onerous than the
payment of option money. Since there is a
consideration distinct from the price, Serra is bound by
the option contract. Therefore, he cannot refuse to sell
the land to RCBC.
A contract of adhesion is one wherein a party,
usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his
signature or his "adhesion" thereto. These types of
contracts are as binding as ordinary contracts because
in reality, the party who adheres to the contract is free
to reject it entirely. In the case at bar, the Supreme
Court did not find the situation to be inequitable
because petitioner is a highly educated man, who, at
the time of the trial was already a CPA-Lawyer, and
when he entered into the contract, was already a CPA,
holding a respectable position with the Metropolitan
Manila Commission. It is evident that a man of his
stature should have been more cautious in transactions
he enters into, particularly where it concerns valuable
properties. Also, in the present case, the consideration
is even more onerous on the part of the lessee since it
entails transferring of the building and/or
improvements on the property to petitioner, should
respondent bank fail to exercise its option within the
period stipulated.
75. Malbarosa v. CA (2003)
Facts:
Here in petitioner was the president and general
manager of Philtectic Corp., a subsidiary of respondent
SEADC. Being an officer, he was issued a car and
membership in the Architectural Center. One day he
intimidated with the vice-chairman of the BoD of
respondent his desire to retire and he requested that
his incentive compensation be paid to him as president
of Philtectic. He then tendered his resignation to said
VP. One of the officer met with petitioner and informed
him that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer
to petitioner stating therein acceptance of petitioners
resignation and advised him that he is entitled to
P251k as his incentive compensation. In the same
letter, the VP proposed the satisfaction of his incentive
by giving him the car the company issued and the
membership in the Architectural Center will be
transferred to him, instead of cash. Petitioner was
required by respondent through the VP to affix his
signature in the letter if he was agreeable to the
proposal. The letter was given to the petitioner by the
officer who told him that he was supposed to get
P395k.Petitioner was dismayed when he received the
letter-offer and refused to sign it as required by
respondent if he was agreeable to it.
Two weeks later, respondent company demanded
the return the car and turn over the membership in the
Architectural Center. Petitioner wrote the counsel of
respondent telling him that he cannot comply with the
demand since he already accepted the offer fourteen
(14) days after it was made. In his letter, he enclosed a
Xerox of the original with his affixed signature as
required.
 Civil Law Review II 4th Assignment
With his refusal, respondent instituted an action for
recovery with replevin. In his Answer to the complaint,
the petitioner, as defendant therein, alleged that he
had already agreed on March 28, 1990 to the March
14, 1990 Letter-offer of the respondent, the plaintiff
therein, and had notified the said plaintiff of his
acceptance; hence, he had the right to the possession
of the car.
After the trial, judgment was rendered against
petitioner. The trial court opined that there existed no
perfected contract between the petitioner and the
respondent on the latters March 14, 1990 Letter-offer
for failure of the petitioner to effectively notify the
respondent of his acceptance of said letter-offer before
the respondent withdrew the same. He appealed to the
CA which affirmed the decision of the trial court.
Hence, this present appeal.
Issue: Whether or not there was a valid acceptance on
his part of the March 14, 1990 Letter-offer of the
respondent.
Held: No. Under Article 1319 of the New Civil Code,
the consent by a party is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. An offer
may be reached at any time until it is accepted. An
offer that is not accepted does not give rise to a
consent. To produce a contract, there must be
acceptance of the offer which may be express or
implied but must not qualify the terms of the offer. The
acceptance must be absolute, unconditional and
without variance of any sort from the offer. The
acceptance of an offer must be made known to the
offeror. Unless the offeror knows of the acceptance,
there is no meeting of the minds of the parties, no real
concurrence of offer and acceptance.
The offeror may withdraw its offer and revoke the
same before acceptance thereof by the offeree. The
contract is perfected only from the time an acceptance
of an offer is made known to the offeror. If an offeror
prescribes the exclusive manner in which acceptance
of his offer shall be indicated by the offeree, an
acceptance of the offer in the manner prescribed will
bind the offeror. On the other hand, an attempt on the
part of the offeree to accept the offer in a different
manner does not bind the offeror as the absence of the
meeting of the minds on the altered type of
acceptance.
An offer made inter praesentes must be accepted
immediately. If the parties intended that there should
be an express acceptance, the contract will be
perfected only upon knowledge by the offeror of the
express acceptance by the offeree of the offer. An
acceptance which is not made in the manner
prescribed by the offeror is not effective but
constitutes a counter-offer which the offeror may
accept or reject.
The contract is not perfected if the offeror revokes
or withdraws its offer and the revocation or withdrawal
of the offeror is the first to reach the offeree.
In the case at bar, the respondent made its offer
through its VP. On March 16, the officer handed over
the original letter-offer to petitioner. The respondent
required the petitioner to accept by affixing his
signature and the date in the letter offer, thus
foreclosing an implied acceptance or any other mode
of acceptance. And it is for a fact that the petitioner did
not accept or reject the offer for he needed time to
decide whether to accept or reject. Although the
petitioner claims that he had affixed his conformity to
the letter-offer on March 28, 1990, the petitioner failed
to transmit the said copy to the respondent. It was only
on April 7, 1990 when the petitioner appended to his
letter to the respondent a copy of the said March 14,
1990 Letter-offer bearing his conformity that he
notified the respondent of his acceptance to said offer.
But then, the respondent, through Philtectic
Corporation, had already withdrawn its offer and had
already notified the petitioner of said withdrawal via
respondents letter dated April 4, 1990 which was
delivered to the petitioner on the same day.
Indubitably, there was no contract perfected by the
parties on the March 14, 1990 Letter-offer of the
respondent.
On the second issue. It is necessarily so because
there was no need for the respondent to withdraw its
offer because the petitioner had already rejected the
respondents offer on March 16, 1990 when the
petitioner received the original of the March 14, 1990
Letter-offer of the respondent without the petitioner
affixing his signature on the space therefor.