[G.R. No. 61594. September 28, 1990.

] This agreement shall be construed and governed under and by the laws of Pakistan,
and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
matter arising out of or under this agreement."
vs. HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON.
VICENTE LEOGARDO, JR., in his capacity as Deputy Minister; Respondents then commenced training in Pakistan. After their training period, they
ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG, began discharging their job functions as flight attendants, with base station in Manila
respondents. and flying assignments to different parts of the Middle East and Europe.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner. On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration
of the contracts of employment, PIA through Mr. Oscar Benares, counsel for and
Ledesma, Saludo & Associates for private respondents.
official of the local branch of PIA, sent separate letters both dated 1 August 1980 to
DECISION private respondents Farrales and Mamasig advising both that their services as flight
stewardesses would be terminated "effective 1 September 1980, conformably to
FELICIANO, J p:
clause 6 (b) of the employment agreement [they had] executed with [PIA]." 2
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"),
On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a
a foreign corporation licensed to do business in the Philippines, executed in Manila
complaint, docketed as NCR-STF-9-5151-80, for illegal dismissal and non-payment
two (2) separate contracts of employment, one with private respondent Ethelynne B.
of company benefits and bonuses, against PIA with the then Ministry of Labor and
Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The contracts,
Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE
which became effective on 9 January 1979, provided in pertinent portion as follows:
hearing officer Atty. Jose M. Pascual ordered the parties to submit their position
"5. DURATION OF EMPLOYMENT AND PENALTY papers and evidence supporting their respective positions. The PIA submitted its
position paper, 3 out no evidence, and there claimed that both private respondents
This agreement is for a period of three (3) years, but can be extended by the mutual
were habitual absentees; that both were in the habit of bringing in from abroad
consent of the parties.
sizeable quantities of "personal effects"; and that PIA personnel at the Manila
xxx xxx xxx International Airport had been discreetly warned by customs officials to advise private
respondents to discontinue that practice. PIA further claimed that the services of both
6. TERMINATION
private respondents were terminated pursuant to the provisions of the employment
xxx xxx xxx contract.
Notwithstanding anything to contrary as herein provided, PIA reserves the right to In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered
terminate this agreement at any time by giving the EMPLOYEE notice in writing in the reinstatement of private respondents with full backwages or, in the alternative, the
advance one month before the intended termination or in lieu thereof, by paying the payment to them of the amounts equivalent to their salaries for the remainder of the
EMPLOYEE wages equivalent to one month's salary. fixed three-year period of their employment contracts; the payment to private
respondent Mamasig of an amount equivalent to the value of a round trip ticket
xxx xxx xxx
Manila-USA-Manila; and payment of a bonus to each of the private respondents
10. APPLICABLE LAW: equivalent to their one-month salary. 4 The Order stated that private respondents had

1
attained the status of regular employees after they had rendered more than a year of
continued service; that the stipulation limiting the period of the employment contract
to three (3) years was null and void as violative of the provisions of the Labor Code
and its implementing rules and regulations on regular and casual employment; and
that the dismissal, having been carried out without the requisite clearance from the
MOLE, was illegal and entitled private respondents to reinstatement with full
backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy
Minister, MOLE, adopted the findings of fact and conclusions of the Regional
Director and affirmed the latter's award save for the portion thereof giving PIA the
option, in lieu of reinstatement, "to pay each of the complainants [private
respondents] their salaries corresponding to the unexpired portion of the contract[s]
[of employment] . . ." 5
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional
Director and the Order of the Deputy Minister as having been rendered without
jurisdiction; for having been rendered without support in the evidence of record since,
allegedly, no hearing was conducted by the hearing officer, Atty. Jose M. Pascual; and
for having been issued in disregard and in violation of petitioner's rights under the
employment contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no
jurisdiction over the subject matter of the complaint initiated by private respondents
for illegal dismissal, jurisdiction over the same being lodged in the Arbitration Branch
of the National Labor Relations Commission ("NLRC"). It appears to us beyond
dispute, however, that both at the time the complaint was initiated in September 1980
and at the time the Orders assailed were rendered on January 1981 (by Regional
Director Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente
Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.
Article 278 of the Labor Code, as it then existed, forbade the termination of the
services of employees with at least one (1) year of service without prior clearance from
the Department of Labor and Employment:
"Art. 278. Miscellaneous Provisions — . . .
(b) With or without a collective agreement, no employer may shut down his
establishment or dismiss or terminate the employment of employees with at least one
year of service during the last two (2) years, whether such service is continuous or
broken, without prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate . . ." (Emphasis supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code,
made clear that in case of a termination without the necessary clearance, the Regional
Director was authorized to order the reinstatement of the employee concerned and
the payment of backwages; necessarily, therefore, the Regional Director must have
been given jurisdiction over such termination cases:
"Section 2. Shutdown or dismissal without clearance. — Any shutdown or dismissal without
prior clearance shall be conclusively presumed to be termination of employment without a just cause.
The Regional Director shall, in such case order the immediate reinstatement of the employee and the
payment of his wages from the time of the shutdown or dismissal until the time of reinstatement."
(Emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was
similarly very explicit about the jurisdiction of the Regional Director over termination
of employment cases:
"Under PD 850, termination cases — with or without CBA — are now placed under the original
jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the first
time, are also placed under the Regional Director. Before PD 850, termination cases where there was
a CBA were under the jurisdiction of the grievance machinery and voluntary arbitration, while
termination cases where there was no CBA were under the jurisdiction of the Conciliation Section.
In more details, the major innovations introduced by PD 850 and its implementing
rules and regulations with respect to termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every application for clearance, whether
there is opposition or not, within ten days from receipt thereof.
xxx xxx xxx"
(Emphasis supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director
had jurisdiction, still his order was null and void because it had been issued in violation
of petitioner's right to procedural due process. 6 This claim, however, cannot be given
2
serious consideration. Petitioner was ordered by the Regional Director to submit not
only its position paper but also such evidence in its favor as it might have. Petitioner
opted to rely solely upon its position paper; we must assume it had no evidence to
sustain its assertions. Thus, even if no formal or oral hearing was conducted,
petitioner had ample opportunity to explain its side. Moreover, petitioner PIA was
able to appeal his case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due process must be
rejected. At the time the complaint was filed by private respondents on 21 September
1980 and at the time the Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, specified that a "dismissal without prior
clearance shall be conclusively presumed to be termination of employment without a
just cause", and the Regional Director was required in such case to "order the
immediate reinstatement of the employee and the payment of his wages from the time
of the shutdown or dismissal until . . . reinstatement." In other words, under the then
applicable rule, the Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive ( juris et de jure) character of
the presumption created by such applicable law and regulation. In Cebu Institute of
Technology v. Minister of Labor and Employment, 8 the Court pointed out that
"under Rule 14, Section 2, of the Implementing Rules and Regulations, the
termination of [an employee] which was without previous clearance from the Ministry
of Labor is conclusively presumed to be without [just] cause . . . [a presumption which]
cannot be overturned by any contrary proof however strong."
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its
contract of employment with private respondents Farrales and Mamasig, arguing that
its relationship with them was governed by the provisions of its contract rather than
by the general provisions of the Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship,
extendible by agreement between the parties; while paragraph 6 provided that,
notwithstanding any other provision in the contract, PIA had the right to terminate
the employment agreement at any time by giving one-month's notice to the employee
or, in lieu of such notice, one-month's salary.
A contract freely entered into should, of course, be respected, as PIA argues, since a
contract is the law between the parties. 10 The principle of party autonomy in
contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil
Code is that the contracting parties may establish such stipulations as they may deem
convenient, " provided they are not contrary to law, morals, good customs, public
order or public policy." Thus, counter-balancing the principle of autonomy of
contracting parties is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public policy, are deemed
written into the contract. 11 Put a little differently, the governing principle is that
parties may not contract away applicable provisions of law especially peremptory
provisions dealing with matters heavily impressed with public interest. The law
relating to labor and employment is clearly such an area and parties are not at liberty
to insulate themselves and their relationships from the impact of labor laws and
regulations by simply contracting with each other. It is thus necessary to appraise the
contractual provisions invoked by petitioner PIA in terms of their consistency with
applicable Philippine law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect
held that paragraph 5 of that employment contract was inconsistent with Articles 280
and 281 of the Labor Code as they existed at the time the contract of employment
was entered into, and hence refused to give effect to said paragraph 5. These Articles
read as follows:
"Art. 280. Security of Tenure. — In cases of regular employment, the employer
shall not terminate the services of an employee except for a just cause or when
authorized by this Title. An employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights and to his backwages
computed from the time his compensation was withheld from him up to the time his
reinstatement.
Article 281. Regular and Casual Employment. — The provisions of written
agreement to the contrary notwithstanding and regardless of the oral agreements of
the parties, an employment shall be deemed to be regular where the employee has
been engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer, except where the employment has been fixed
for a specific project or undertaking the completion or termination of which has been
3
determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration
of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: provided, that, any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered as regular employee
with respect to the activity in which he is employed and his employment shall continue
while such actually exists." (Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion
to examine in detail the question of whether employment for a fixed term has been
outlawed under the above quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for employment with a fixed period
was not necessarily unlawful:
"There can of course be no quarrel with the proposition that where from the
circumstances it is apparent that periods have been imposed to preclude acquisition
of tenurial security by the employee, they should be struck down or disregarded as
contrary to public policy, morals, etc. But where no such intent to circumvent the law
is shown, or stated otherwise, where the reason for the law does not exist, e.g. where
it is indeed the employee himself who insists upon a period or where the nature of
the engagement is such that, without being seasonal or for a specific project, a definite
date of termination is a sine qua non, would an agreement fixing a period be essentially
evil or illicit, therefore anathema? Would such an agreement come within the scope
of Article 280 which admittedly was enacted `to prevent the circumvention of the
right of the employee to be secured in . . (his) employment?'
As it is evident from even only the three examples already given that Article 280 of
the Labor Code, under a narrow and literal interpretation, not only fails to exhaust
the gamut of employment contracts to which the lack of a fixed period would be an
anomaly, but would also appear to restrict, without reasonable distinctions, the right
of an employee to freely stipulate with his employer the duration of his engagement,
it logically follows that such a literal interpretation should be eschewed or avoided.
The law must be given reasonable interpretation, to preclude absurdity in its
application. Outlawing the whole concept of term employment and subverting to
boot the principle of freedom of contract to remedy the evil of employers' using it as
a means to prevent their employees from obtaining security of tenure is like cutting
off the nose to spite the face or, more relevantly, curing a headache by lopping off
the head.
xxx xxx xxx
Accordingly, and since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly appears to have been,
as already observed, to prevent circumvention of the employee's right to be secure in
his tenure, the clause in said article indiscriminately and completely ruling out all
written or oral agreements conflicting with the concept of regular employment as
defined therein should be construed to refer to the substantive evil that the Code itself
has singled out: agreements entered into precisely to circumvent security of tenure. It
should have no application to instances where a fixed period of employment was
agreed upon knowingly and voluntarily by the parties, without any force, duress or
improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent, or where it satisfactorily appears that the
employer and employee dealt with each other on more or less equal terms with no
moral dominance whatever being exercised by the former over the latter. Unless thus
limited in its purview, the law would be made to apply to purposes other than those
explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended consequences."
(Emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or
absence of a substantial indication that the period specified in an employment
agreement was designed to circumvent the security of tenure of regular employees
which is provided for in Articles 280 and 281 of the Labor Code. This indication must
ordinarily rest upon some aspect of the agreement other than the mere specification
of a fixed term of the employment agreement, or upon evidence aliunde of the intent
to evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement
between petitioner PIA and private respondents, we consider that those provisions
4
must be read together and when so read, the fixed period of three (3) years specified
in paragraph 5 will be seen to have been effectively neutralized by the provisions of
paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee
the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such
period in effect a facultative one at the option of the employer PIA. For petitioner
PIA claims to be authorized to shorten that term, at any time and for any cause
satisfactory to itself, to a one-month period, or even less by simply paying the
employee a month's salary. Because the net effect of paragraphs 5 and 6 of the
agreement here involved is to render the employment of private respondents Farrales
and Mamasig basically employment at the pleasure of petitioner PIA, the Court
considers that paragraphs 5 and 6 were intended to prevent any security of tenure
from accruing in favor of private respondents even during the limited period of three
(3) years, 13 and thus to escape completely the thrust of Articles 280 and 281 of the
Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement
which specifies, firstly, the law of Pakistan as the applicable law of the agreement and,
secondly, lays the venue for settlement of any dispute arising out of or in connection
with the agreement "only [in] courts of Karachi, Pakistan". The first clause of
paragraph 10 cannot be invoked to prevent the application of Philippine labor laws
and regulations to the subject matter of this case, i.e., the employer-employee
relationship between petitioner PIA and private respondents. We have already
pointed out that relationship is much affected with public interest and that the
otherwise applicable Philippine laws and regulations cannot be rendered illusory by
the parties agreeing upon some other law to govern their relationship. Neither may
petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as
the sole venue for the settlement of disputes between the contracting parties. Even a
cursory scrutiny of the relevant circumstances of this case will show the multiple and
substantive contacts between Philippine law and Philippine courts, on the one hand,
and the relationship between the parties, upon the other: the contract was not only
executed in the Philippines, it was also performed here, at least partially; private
respondents are Philippine citizens and residents, while petitioner, although a foreign
corporation, is licensed to do business (and actually doing business) and hence
resident in the Philippines; lastly, private respondents were based in the Philippines
in between their assigned flights to the Middle East and Europe. All the above
contacts point to the Philippine courts and administrative agencies as a proper forum
for the resolution of contractual disputes between the parties. Under these
circumstances, paragraph 10 of the employment agreement cannot be given effect so
as to oust Philippine agencies and courts of the jurisdiction vested upon them by
Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead
and prove the contents of Pakistan law on the matter; it must therefore be presumed
that the applicable provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law. 14
We conclude that private respondents Farrales and Mamasig were illegally dismissed
and that public respondent Deputy Minister, MOLE, had not committed any grave
abuse of discretion nor any act without or in excess of jurisdiction in ordering their
reinstatement with backwages. Private respondents are entitled to three (3) years
backwages without qualification or deduction. Should their reinstatement to their
former or other substantially equivalent positions not be feasible in view of the length
of time which has gone by since their services were unlawfully terminated, petitioner
should be required to pay separation pay to private respondents amounting to one (1)
month's salary for every year of service rendered by them, including the three (3) years
service putatively rendered.
ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of
merit, and the Order dated 12 August 1982 of public respondent is hereby
AFFIRMED, except that (1) private respondents are entitled to three (3) years
backwages, without deduction or qualification; and (2) should reinstatement of private
respondents to their former positions or to substantially equivalent positions not be
feasible, then petitioner shall, in lieu thereof, pay to private respondents separation
pay amounting to one (1)-month's salary for every year of service actually rendered
by them and for the three (3) years putative service by private respondents. The
Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs
against petitioner.
SO ORDERED.
5
[G.R. No. 153674. December 20, 2006.] xxx xxx xxx

AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners, The Supervisor agrees:
vs. LETICIA H. LUNA, respondent. 1) To purchase products from the Company exclusively for resale and to be responsible for
DECISION obtaining all permits and licenses required to sell the products on retail. CDScaT
xxx xxx xxx
CHICO-NAZARIO, J p:
The Company and the Supervisor mutually agree:
The Case
xxx xxx xxx
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking
to reverse and set aside the Decision 1 dated 20 May 2002 of the Court of Appeals in CA- 2) That this agreement in no way makes the Supervisor an employee or agent of the Company,
G.R. CV No. 52550, which affirmed in toto the Decision 2 dated 26 January 1996 of the therefore, the Supervisor has no authority to bind the Company in any contracts with other parties.
Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Case No. 88-2595, in favor 3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned,
of herein respondent Leticia H. Luna (Luna), rendered by the Honorable Ed Vicente S. and shall have the sole discretion to determine where and how products purchased from the
Albano, designated as the "assisting judge" pursuant to Supreme Court Administrative Order Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets
No. 70-94, dated 16 June 1994. IHEaAc or to any entity or person who sells things at a fixed place of business.
The Facts 4) That this agreement supersedes any agreement/s between the Company and the Supervisor.

The facts of the case are not in dispute. As culled from the records, they are as follows:
The present petition stemmed from a complaint 3 dated 1 December 1988, filed by herein
respondent Luna alleging, inter alia, that she began working for Beautifont, Inc. in 1972, first
as a franchise dealer and then a year later, as a Supervisor.
Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over
the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued
working for said successor company.
Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of
petitioner Avon's Theatrical Promotion's Group, for which she received a per diem for each
theatrical performance.
On 5 November 1985, petitioner Avon and respondent Luna entered into an agreement,
entitled Supervisor's Agreement, whereby said parties contracted in the manner quoted
below:
The Company agrees:
xxx xxx xxx
1) To allow the Supervisor to purchase at wholesale the products of the Company.
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company.
6) Either party may terminate this agreement at will, with or without cause, at any time upon
notice to the other.
xxx xxx xxx. 4
By virtue of the execution of the aforequoted Supervisor's Agreement, respondent Luna
became part of the independent sales force of petitioner Avon.
Sometime in the latter part of 1988, respondent Luna was invited by a former Avon employee
who was then currently a Sales Manager of Sandré Philippines, Inc., a domestic corporation
engaged in direct selling of vitamins and other food supplements, to sell said products.
Respondent Luna apparently accepted the invitation as she then became a Group Franchise
Director of Sandré Philippines, Inc. concurrently with being a Group Supervisor of
petitioner Avon. As Group Franchise Director, respondent Luna began selling and/or
promoting Sandré products to other Avon employees and friends. On 23 September 1988,
she requested a law firm to render a legal opinion as to the legal consequence of the
Supervisor's Agreement she executed with petitioner Avon. In response to her query, a
lawyer of the firm opined that the Supervisor's Agreement was "contrary to law and public
policy."
6
Wanting to share the legal opinion she obtained from her legal counsel, respondent Luna
wrote a letter to her colleagues and attached mimeographed copies of the opinion and then
circulated them. The full text of her letter reads:
We all love our work as independent dealers and we all love to continue in this livelihood. Because
my livelihood is important to me, I have asked the legal opinion of a leading Makati law office
regarding my status as an independent dealer, I am sharing this opinion with you.
I have asked their advice on three specific things:
1) May the company legally change the conditions of the existing "Supervisor's Agreement"
without the Supervisor's consent? If I should refuse to sign the new Agreement, may the company
terminate my dealership? HIaSDc
On the first issue, my lawyers said that the company cannot change the existing "Agreement" without
my consent, and that it would be illegal if the company will compel me to sign the new agreement.
2) Is Section 5 of the "Supervisor's Agreement" which says that a dealer may only sell products
sold by the company, legal?
My lawyers said that Section 5 of the Supervisors Agreement is NOT valid because it is contrary to
public policy, being an unreasonable restraint of trade.
3) Is Section 6 of the "Supervisor's Agreement" which authorizes the company to terminate the
contract at any time, with or without cause, legal?
My lawyer said Section 6 is NOT valid because it is contrary to law and public policy. The company
cannot terminate the "Supervisor's Agreement" without a valid cause.
Therefore, I can conclude that I don't violate Section 5 if I sell any product which is not in direct
competition with the company's products, and there is no valid reason for the company to terminate
my dealership contract if I sell a non-competitive product.
Dear co-supervisor[s], let us all support the reasonable and legal policies of the company. However,
we must all be conscious of our legal rights and be ready to protect ourselves if they are trampled
upon.
I hope we will all stay together selling Avon products for a long time and at the same time increase
our earning opportunity by engaging in other businesses without being afraid to do so.
In a letter 5 dated 11 October 1988, petitioner Avon, through its President and General Manager,
Jose Mari Franco, notified respondent Luna of the termination or cancellation of her Supervisor's
Agreement with petitioner Avon. Said letter reads in part:
In September, (sic) 1988, you brought to our attention that you signed up as Group Franchise
Director of another company, Sandré Philippines, Inc. (SPI). aCIHAD
Not only that. You have also sold and promoted products of SPI (please refer for example to SPI
Invoice No. 1695 dated Sept. 30, 1988). Worse, you promoted/sold SPI products even to several
employees of our company including Mary Arlene Nolasco, Regina Porter, Emelisa Aguilar, Hermie
Esteller and Emma Ticsay.
To compound your violation of the above-quoted provision, you have written letters to other
members of the Avon salesforce inducing them to violate their own contracts with our company. . .
..
For violating paragraph 5 . . ., the Company, pursuant to paragraph 6 of the same Agreement, is
terminating and canceling its Supervisor's Agreement with you effective upon your receipt of this
notice. We regret having to do this, but your repeated disregard of the Agreement, despite warnings,
leaves (sic) the Company no other choice.
xxx xxx xxx
Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City,
Branch 138. The complaint was docketed as Civil Case No. 88-2595.
On 26 January 1996, after trial on the merits, the RTC rendered judgment in favor of
respondent Luna stating that:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the
plaintiff, and against defendant, Avon, ordering the latter:
1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the
date of this judgment up to the time of complete payment;
2) to pay attorney's fees in the amount of P20,000.00;
3) to pay the costs. 6
On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an
Order 7 dated 15 February 1996, the RTC gave due course to the appeal and directed its
Branch Clerk of Court to transmit the entire records of the case to the Court of Appeals,
which docketed the appeal as CA G.R. CV No. 52550. CTcSIA
On 20 May 2002, the Court of Appeals promulgated the assailed Decision, the dispositive
part of which states thus:
WHEREFORE, the foregoing premises considered, the decision appealed from is hereby
AFFIRMED in toto. 8
The Issues
7
In predictable displeasure with the conclusions reached by the appellate court, petitioner
Avon now implores this Court to review, via a petition for review on certiorari under Rule
45 of the Revised Rules of Court, the former's decision and to resolve the following assigned
errors: 9
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT THE
SUPERVISOR'S AGREEMENT EXECUTED BETWEEN AVON AND RESPONDENT
LUNA AS NULL AND VOID FOR BEING AGAINST PUBLIC POLICY;
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT AVON
HAD NO RIGHT TO TERMINATE OR CANCEL THE SUPERVISOR'S AGREEMENT;
III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE
AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES IN FAVOR OF RESPONDENT
LUNA; and
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING
ATTORNEY'S FEES AND LITIGATION EXPENSES IN FAVOR OF PETITIONER.
cHTCaI
The Court's Ruling
A priori, respondent Luna objects to the presentation, and eventual resolution, of the issues
raised herein as they allegedly involve questions of facts.
To be sure, questions of law are those that involve doubts or controversies on what the law
is on certain state of facts; and questions of fact, on the other hand, are those in which there
is doubt or difference as to the truth or falsehood of the alleged facts. One test, it has been
held, is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case it is a question of law, otherwise it will be a question
of fact. 10
In the present case, the threshold issues are a) whether or not paragraph 5 of the Supervisor's
Agreement is void for being violative of law and public policy; and b) whether or not
paragraph 6 of the Supervisor's Agreement which authorizes petitioner Avon to terminate
or cancel the agreement at will is void for being contrary to law and public policy. Certainly,
it is quite obvious that the foregoing issues are questions of law.
In affirming the decision of the RTC declaring the subject contract null and void for being
against public policy, the Court of Appeals ruled that the exclusivity clause, which states that:
The Company and the Supervisor mutually agree:
xxx xxx xxx
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company. [Emphasis supplied.] IDAESH
should be interpreted to apply solely to those products directly in competition with those of petitioner
Avon's, i.e., cosmetics and/or beauty supplies and lingerie products. Its declaration is anchored on
the fact that Avon products, at that time, were not in any way similar to the products sold by Sandré
Philippines, Inc. At that time, the latter was merely selling vitamin products. Put simply, the products
of the two companies do not compete with each other. The appellate court ratiocinated that:
. . . If the agreement were interpreted otherwise, so as to include products that do not directly compete
with the products of defendant-appellant Avon, such would result in absurdity. . . . [A]greements
which prohibit a person from engaging in any enterprise whether similar or not to the enterprise of
the employer constitute an unreasonable restraint of trade, thus, it is void as against public policy. 11
Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It
argues that the latter went beyond the literal and obvious intent of the parties to the subject
contract when it interpreted the abovequoted clause to apply only to those products that do
not compete with that of petitioner Avon's; and that the words "only and exclusively" need
no other interpretation other than the literal meaning — that "THE SUPERVISORS
CANNOT SELL THE PRODUCTS OF OTHER COMPANIES WHETHER OR NOT
THEY ARE COMPETING PRODUCTS." 12
Moreover, petitioner Avon reasons that:
The exclusivity clause was directed against the supervisors selling other products utilizing their
training and experience, and capitalizing on Avon's 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.
xxx xxx xxx
Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to sell and
promote its products. It was precisely why Sandre simply invited, and then and there hired Luna and
8
other Avon supervisors and dealers to sell and promote its products. They had the training and
experience, they also had a ready market for the other products — the customers to whom they had
been selling the Avon products. It was easy to entice the supervisors to sign up. The supervisors
could continue to sell Avon products, and at the same time earn additional income by selling other
products. aDSTIC
This is most unfair to Avon. The other companies cannot ride on and exploit the training
and experience of the Avon sales force to sell and promote their own products. [Emphasis
supplied.]
On the other hand, in her Memorandum, respondent Luna counters that "there is no
allegation nor any finding by the trial court or the Court of Appeals of an 'existing nationwide
sales and promotions network established by Avon' or 'Avon's existing sales promotions
network' or 'Avon's tried and tested sales and promotions network' nor the alleged damage
caused to such system caused by other companies." Further, well worth noting is the opinion
of respondent Luna's counsel which started the set off the series of events which culminated
to the termination or cancellation of the Supervisor's Agreement. In response to the query-
letter 13 of respondent Luna, the latter's legal counsel opined that, as allegedly held in the
case of Ferrazzini v. Gsell, 14 paragraph 5 of the subject Supervisor's Agreement "not only
prohibits the supervisor from selling products which compete with the company's product
but restricts likewise the supervisor from engaging in any industry which involves sales in
general." 15 Said counsel thereafter concluded that the subject provision in the Supervisor's
Agreement constitutes an unreasonable restraint of trade and, therefore, void for being
contrary to public policy.
At the crux of the first issue is the validity of paragraph 5 of the Supervisor's Agreement, viz:
The Company and the Supervisor mutually agree:
xxx xxx xxx
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company. [Emphasis supplied.] DEHaAS
In business parlance, this is commonly termed as the "exclusivity clause." This is defined as
agreements which prohibit the obligor from engaging in "business" in competition with the obligee.
This exclusivity clause is more often the subject of critical scrutiny when it is perceived to
collide with the Constitutional proscription against "reasonable restraint of trade or
occupation." The pertinent provision of the Constitution is quoted hereunder. Section 19 of
Article XII of the 1987 Constitution on the National Economy and Patrimony states that:
SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires.
No combinations in restraint of trade or unfair competition shall be allowed.
First off, restraint of trade or occupation embraces acts, contracts, agreements or
combinations which restrict competition or obstruct due course of trade. 16
Now to the basics. From the wordings of the Constitution, truly then, what is brought about
to lay the test on whether a given agreement constitutes an unlawful machination or
combination in restraint of trade is whether under the particular circumstances of the case
and the nature of the particular contract involved, such contract is, or is not, against public
interest. 17
Thus, restrictions upon trade may be upheld when not contrary to public welfare and not
greater than is necessary to afford a fair and reasonable protection to the party in whose
favor it is imposed. 18 Even contracts which prohibit an employee from engaging in business
in competition with the employer are not necessarily void for being in restraint of trade.
In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed
vis-à-vis all the circumstances surrounding such agreement in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable restraint on competition.
TIaEDC
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. As far back as 1916, in the case of Ferrazzini v. Gsell, 19 this Court
has had the occasion to declare that:
[T]here is no difference in principle between the public policy (orden público) in the two jurisdictions
(United States and the Philippine Islands) as determined by the Constitution, laws, and judicial
decisions.
In the United States it is well settled that contracts in undue or unreasonable restraint of
trade are unenforcible because they are repugnant to the established public policy in that
country. Such contracts are illegal in the sense that the law will not enforce them. The
Supreme Court in the United States, in Oregon Steam Navigation Co. vs. Winsor (20 Will.,
64), quoted with approval in Gibbs v. Consolidated gas Co. of Baltimore (130 U.S., 396),
said:
'Cases must be judged according to their circumstances, and can only be rightly judged when reason
and grounds of the rule are carefully considered. There are two principle grounds on which the
doctrine is founded that a contract in restraint of trade is void as against public policy. One is, the
injury to the public by being deprived of the restricted party's industry; and the other is, the injury to
9
the party himself by being precluded from pursuing his occupation, and thus being prevented from
supporting himself and his family.'
And what is public policy? In the words of the eminent Spanish jurist, Don Jose Maria Manresa, in
his commentaries of the Codigo Civil, public policy (orden público):
[R]epresents in the law of persons the public, social and legal interest, that which is permanent and
essential of the institutions, that which, even if favoring an individual in whom the right lies, cannot
be left to his own will. It is an idea which, in cases of the waiver of any right, is manifested with
clearness and force. 20
As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the
term "public policy" a more defined meaning:
Agreements in violation of orden público must be considered as those which conflict with law,
whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but law
which in certain respects affects the interest of society. 21
Plainly put, 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. 22 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. 23
From another perspective, the main objection to exclusive dealing is its tendency to foreclose
existing competitors or new entrants from competition in the covered portion of the relevant
market during the term of the agreement. 24 Only those arrangements whose probable effect
is to foreclose competition in a substantial share of the line of commerce affected can be
considered as void for being against public policy. The foreclosure effect, if any, depends on
the market share involved. The relevant market for this purpose includes the full range of
selling opportunities reasonably open to rivals, namely, all the product and geographic sales
they may readily compete for, using easily convertible plants and marketing organizations. 25
Applying the preceding principles to the case at bar, there is nothing invalid or contrary to
public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity
clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products
other than those manufactured by petitioner Avon. We quote with approval the
determination of the U.S. Supreme Court in the case of Board of Trade of Chicago v. U.S.
26 that "the question to be determined is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition, or whether it is such as may suppress
or even destroy competition."
Such prohibition is neither directed to eliminate the competition like Sandré 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. HTIEaS
It was not by chance that Sandré Philippines, Inc. made respondent Luna one of its Group
Franchise Directors. It doesn't take a genius to realize that by making her an important part
of its distribution arm, Sandré 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
Sandré 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 Sandré 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 Sandré products in to the market. Therefore, it
cannot be considered void for being against public policy. How can the protection of one's
property be violative of public policy? Sandré 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.
It has been argued that the Supervisor's Agreement is in the nature of a contract of adhesion;
but just because it is does not necessarily mean that it is void. A contract of adhesion is so-
called because its terms are prepared by only one party while the other party merely affixes
his signature signifying his adhesion thereto. 27 Such contract is just as binding as ordinary
contracts. "It is true that we have, on occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant bargaining party and is reduced
to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain
10
on equal footing. Nevertheless, contracts of adhesion are not invalid per se and they are not that clearly provided for two ways of terminating the contract, i.e., with or without cause. The
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely, utilization of one mode will not preclude the use of the other. Therein, we stated that the finding that
if he adheres, he gives his consent." 28 In the case at bar, there was no indication that the termination of the contract was "for cause," is immaterial. When petitioner terminated the
respondent Luna was forced to sign the subject agreement. Being of age, financially stable contract "without cause," it was required only to give . . . a 30-day prior written notice, which it did.
cECaHA
and with vast business experience, she is presumed to have acted with due care and to have
signed the assailed contract with full knowledge of its import. Under the premises, it would In the case at bar, the termination clause of the Supervisor's Agreement clearly provides for
be difficult to assume that she was morally abused. She was free to reject the agreement if two ways of terminating and/or canceling the contract. One mode does not exclude the
she wanted to. HASDcC 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,
Accordingly, a contract duly executed is the law between the parties, and they are obliged to
whether or not the termination or cancellation of the Supervisor's Agreement was "for
comply fully and not selectively with its terms. A contract of adhesion is no exception. 29
cause," is immaterial. The only requirement is that of notice to the other party. When
The foregoing premises noted, the Court of Appeals, therefore, committed reversible error petitioner Avon chose to terminate the contract, for cause, respondent Luna was duly
in interpreting the subject exclusivity clause to apply merely to those products in direct notified thereof.
competition to those manufactured and sold by petitioner Avon. When the terms of the
Worth stressing is that the right to unilaterally terminate or cancel the Supervisor's
agreement are clear and explicit, that they do not justify an attempt to read into any alleged
Agreement with or without cause is equally available to respondent Luna, subject to the same
intention of the parties, the terms are to be understood literally just as they appear on the
notice requirement. Obviously, no advantage is taken against each other by the contracting
face of the contract. 30 Thus, in order to judge the intention of the contracting parties, "the
parties.
circumstances under which it was made, including the situation of the subject thereof and of
the parties to it, may be shown, so that the judge may be placed in the position of those WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision
whose language he is to interpret." 31 It has been held that once this intention of the parties dated 20 May 2002 rendered by the Court of Appeals in CA-G.R. CV No. 52550, affirming
has been ascertained, it becomes an integral part of the contract as though it has been the judgment of the RTC of Makati City, Branch 138, in Civil Case No. 88-2595, are hereby
originally expressed therein in unequivocal terms. 32 REVERSED and SET ASIDE. Accordingly, let a new one be entered dismissing the
complaint for damages. Costs against respondent Leticia Luna. CSDcTA
Having held that the "exclusivity clause" as embodied in paragraph 5 of the Supervisor's
Agreement is valid and not against public policy, we now pass to a consideration of SO ORDERED.
respondent Luna's objections to the validity of her termination as provided for under
paragraph 6 of the Supervisor's Agreement giving petitioner Avon the right to terminate or
cancel such contract. The paragraph 6 or the "termination clause" therein expressly provides
that:
The Company and the Supervisor mutually agree:
xxx xxx xxx
6) Either party may terminate this agreement at will, with or without cause, at any time upon
notice to the other. [Emphasis supplied.]
In the case of Petrophil Corporation v. Court of Appeals, 33 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
11
[G.R. No. 193178. May 30, 2011.]
PHILIPPINE SAVINGS BANK, petitioner, vs. SPOUSES ALFREDO M.
CASTILLO AND ELIZABETH C. CASTILLO, and SPOUSES ROMEO B.
CAPATI and AQUILINA M. LOBO, respondents.
DECISION
NACHURA, J p:
This is a petition for review on certiorari 1 under Rule 45 of the Rules of Court,
seeking to partially reconsider and modify the Decision 2 dated August 27, 2009 and
the Resolution 3 dated August 4, 2010 of the Court of Appeals (CA) in CA-G.R. CV
No. 86445. ITDHSE
Respondent spouses Alfredo M. Castillo and Elizabeth Capati-Castillo were the
registered owners of a lot located in Tondo, Manila, covered by Transfer Certificate
of Title (TCT) No. 233242. Respondent spouses Romeo B. Capati and Aquilina M.
Lobo were the registered owners of another lot, covered by TCT No. 227858, also
located in Tondo, Manila.
On May 7, 1997, respondents obtained a loan, with real estate mortgage over the said
properties, from petitioner Philippine Savings Bank, as evidenced by a Promissory
Note with a face value of P2,500,000.00. The Promissory Note, in part, reads:
FOR VALUE RECEIVED, I/We, solidarily, jointly and severally, promise to pay to the order of
PHILIPPINE SAVINGS BANK, at its head office or at the above stated Branch the sum of TWO
MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P2,500,000.00), Philippine currency,
with interest at the rate of seventeen per centum (17%) per annum, from date until paid, as follows:
P43,449.41 (principal and interest) monthly for fifty nine (59) months starting June 07, 1997 and
every 7th day of the month thereafter with balloon payment on May 07, 2002.
Also, the rate of interest herein provided shall be subject to review and/or adjustment every ninety
(90) days. ADEaHT
All amortizations which are not paid on due date shall bear a penalty equivalent to
three percent (3%) of the amount due for every month or fraction of a month's delay.
The rate of interest and/or bank charges herein stipulated, during the terms of this
promissory note, its extensions, renewals or other modifications, may be increased,
decreased or otherwise changed from time to time within the rate of interest and
charges allowed under present or future law(s) and/or government regulation(s) as
the PHILIPPINE SAVINGS BANK may prescribe for its debtors.
Upon default of payment of any installment and/or interest when due, all other
installments and interest remaining unpaid shall immediately become due and payable.
Also, said interest not paid when due shall be added to, and become part of the
principal and shall likewise bear interest at the same rate herein provided. 4
From the release of the loan in May 1997 until December 1999, petitioner had
increased and decreased the rate of interest, the highest of which was 29% and the
lowest was 15.5% per annum, per the Promissory Note.
Respondents were notified in writing of these changes in the interest rate. They
neither gave their confirmation thereto nor did they formally question the changes.
However, respondent Alfredo Castillo sent several letters to petitioner requesting for
the reduction of the interest rates. 5 Petitioner denied these requests. DICSaH
Respondents regularly paid their amortizations until December 1999, when they
defaulted due to financial constraints. Per petitioner's table of application of payment,
respondents' outstanding balance was P2,231,798.11. 6 Petitioner claimed that as of
February 11, 2000, respondents had a total outstanding obligation of P2,525,910.29.
7 Petitioner sent them demand letters. Respondents failed to pay.
Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties.
The auction sale was conducted on June 16, 2000, with the properties sold for
P2,778,611.27 and awarded to petitioner as the only bidder. Being the mortgagee,
petitioner no longer paid the said amount but rather credited it to the loan
amortizations and arrears, past due interest, penalty charges, attorney's fees, all legal
fees and expenses incidental to the foreclosure and sale, and partial payment of the
mortgaged debt. On even date, a certificate of sale was issued and submitted to the
Clerk of Court and to the Ex-Officio Sheriff of Manila.
On July 3, 2000, the certificate of sale, sans the approval of the Executive Judge of
the Regional Trial Court (RTC), was registered with the Registry of Deeds of Manila.
Respondents failed to redeem the property within the one-year redemption period.
However, on July 18, 2001, Alfredo Castillo sent a letter to petitioner requesting for
12
an extension of 60 days before consolidation of its title so that they could redeem the
properties, offering P3,000,000.00 as redemption price. Petitioner conceded to
Alfredo Castillo's request, but respondents still failed to redeem the properties.
IDaEHC
On October 1, 2001, respondents filed a case for Reformation of Instruments,
Declaration of Nullity of Notarial Foreclosure Proceedings and Certificate of Sale,
Cancellation of Annotations on TCT Nos. 233242 and 227858, and Damages, with a
plea for the issuance of a temporary restraining order (TRO) and/or writ of
preliminary prohibitory injunction, with the RTC, Branch 14, Manila.
On October 5, 2001, the RTC issued a TRO. Eventually, on October 25, 2001, it
issued a writ of preliminary injunction.
After trial, the RTC rendered its decision dated July 30, 2005, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs, and against the defendants in
the following manner:
1. Declaring the questioned increases of interest as unreasonable, excessive and arbitrary and
ordering the defendant Philippine Savings Bank to refund to the plaintiffs, the amount of interest
collected in excess of seventeen percent (17%) per annum;
2. Declaring the Extrajudicial Foreclosure conducted by the defendants on June 16, 2000 and
the subsequent proceedings taken thereafter to be void ab initio. In this connection, defendant
Register of Deeds is hereby ordered to cause the cancellation of the corresponding annotations at the
back of Transfer Certificates of Title No. 227858 and 233242 in the name of Spouses Alfredo and
Elizabeth Castillo and Spouses Romeo Capati and Aquilina M. Lobo; AEIcSa
3. Defendant Philippine Savings Bank is adjudged to pay plaintiffs the amount of Php50,000.00
as moral damages; Php50,000.00 as exemplary damages; and attorney's fees in the amount of
Php30,000.00 and Php3,000.00 per appearance.
4. Defendants' counterclaims are hereby DISMISSED for lack of merit.
With costs against the defendant Philippine Savings Bank, Inc.
SO ORDERED. 8
Petitioner filed a motion for reconsideration. The RTC partially granted the motion
in its November 30, 2005 Order, modifying the interest rate from 17% to 24% per
annum. 9 aSTHDc
Petitioner appealed to the CA. The CA modified the decision of the RTC, thus —
WHEREFORE, in view of the foregoing, the Decision of the Regional Trial Court is hereby
AFFIRMED WITH MODIFICATIONS. The fallo shall now read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants in
the following manner:
1. Declaring the questioned increases of interest as unreasonable, excessive and arbitrary and
ordering the defendant Philippine Savings Bank to refund to the plaintiffs, the amount of interest
collected in excess of seventeen percent (17%) per annum;
2. Declaring the Extrajudicial Foreclosure conducted by the defendants on June 16, 2000 and
the subsequent proceedings taken thereafter to be valid[;]
3. Defendant Philippine Savings Bank is adjudged to pay plaintiffs the amount of Php25,000.00
as moral damages; Php50,000.00 as exemplary damages; and attorney's fees in the amount of
Php30,000.00 and Php3,000.00 per appearance;
4. Defendants' counterclaims are hereby DISMISSED for lack of merit. ETDSAc
With costs against the defendant Philippine Savings Bank, Inc.
SO ORDERED. 10
Hence, this petition anchored on the contention that the CA erred in: (1) declaring
that the modifications in the interest rates are unreasonable; and (2) sustaining the
award of damages and attorney's fees.
The petition should be partially granted.
The unilateral determination and imposition of the increased rates is violative of the
principle of mutuality of contracts under Article 1308 of the Civil Code, which
provides that "[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them." 11 A perusal of the Promissory
Note will readily show that the increase or decrease of interest rates hinges solely on
the discretion of petitioner. It does not require the conformity of the maker before a
new interest rate could be enforced. Any contract which appears to be heavily weighed
in favor of one of the parties so as to lead to an unconscionable result, thus partaking
13
of the nature of a contract of adhesion, is void. Any stipulation regarding the validity
or compliance of the contract left solely to the will of one of the parties is likewise
invalid. cEaSHC
Petitioner contends that respondents acquiesced to the imposition of the modified
interest rates; thus, there was no violation of the principle of mutuality of contracts.
To buttress its position, petitioner points out that the exhibits presented by
respondents during trial contained a uniform provision, which states:
The interest rate adjustment is in accordance with the Conformity Letter you have signed amending
your account's interest rate review period from ninety (90) to thirty days. 12
It further claims that respondents requested several times for the reduction of the
interest rates, thus, manifesting their recognition of the legality of the said rates. It
also asserts that the contractual provision on the interest rates cannot be said to be
lopsided in its favor, considering that it had, on several occasions, lowered the interest
rates.
We disagree. The above-quoted provision of respondents' exhibits readily shows that
the conformity letter signed by them does not pertain to the modification of the
interest rates, but rather only to the amendment of the interest rate review period
from 90 days to 30 days. Verily, the conformity of respondents with respect to the
shortening of the interest rate review period from 90 days to 30 days is separate and
distinct from and cannot substitute for the required conformity of respondents with
respect to the modification of the interest rate itself. CHEDAc
Moreover, respondents' assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by petitioner, informing them
of the amendments. The said memos were in the nature of a proposal to change the
contract with respect to one of its significant components, i.e., the interest rates. As
we have held, no one receiving a proposal to change a contract is obliged to answer
the proposal. 13 Therefore, respondents could neither be faulted, nor could they be
deemed to have assented to the modified interest rates, for not replying to the said
memos from petitioner.
We likewise disagree with petitioner's assertion that respondents recognized the
legality of the imposed interest rates through the letters requesting for the reduction
of the rates. The request for reduction of the interest does not translate to consent
thereto. To be sure, a cursory reading of the said letters would clearly show that
Alfredo Castillo was, in fact, questioning the propriety of the interest rates imposed
on their loan, viz.:
The undersigned is a mortgagor of Philippine Savings Bank with an outstanding balance of TWO
MILLION FOUR HUNDRED THIRTY EIGHT THOUSAND SIX HUNDRED SIX and 63/100
(P2,438,606.63) at an interest rate of 26% per annum (as per April 6, 1997 inquiry to Leo of the
Accounting Dep't.) and with a monthly amortization of FIFTY EIGHT THOUSAND THREE
HUNDRED FIFTY EIGHT AND 38/100 (P58,358.38). acCDSH
I understand that the present interest rate is lower than the last month's 27%. However, it does not
give our company any break from coping with our receivables. Our clients, Mercure Philippine Village
Hotel, Puerto Azul Beach Hotel, Grand Air Caterer, to name a few, did not settle their obligation to
us inspite of what was agreed upon during our meeting held last February 1998. Their pledge of
paying us at least ONE MILLION PESOS PER AFFILIATION, which we allocate to pay our
balance to your bank, was not a reliable deal to foresee because, as of this very day, not even half of
the amount assured to us was settled. This situation puts the company in critical condition since we
will again shoulder all the interests imposed on our loans, while, we ourselves, did not impose any
surcharge with our receivables.
In connection with this, may I request for a reduction of interest rate, in my favor, i.e., from 26% to
21% per annum. If such appeal is granted to us, we are assuring you of our prompt payment and
keen observance to your rules and regulations. 14
The undersigned is a mortgagor of Philippine Savings Bank with an outstanding balance of TWO
MILLION FOUR HUNDRED THIRTY THREE THOUSAND EIGHTY FOUR and 73/100
(P2,433,084.73) at an interest rate of 22.5% per annum (as per April 24, 1998 memo faxed to us) and
with a monthly amortization of FIFTY TWO THOUSAND FIVE HUNDRED FIFTY EIGHT
AND 01/100 (P52,55[8].01). IcEaST
Such reduction of interest rate is an effect of our currency's development. But based on our inquiries
and research to different financial institutions, the rate your bank is imposing to us is still higher
compared to the eighteen and a half percent (18.5%) others are asking. With this situation, we are
again requesting for a decrease on the interest rate, that is, from 22.5% to 18.5%. This figure stated
is not fictitious since other bank's advertising are published to leading newspapers. The difference
between your rate is visibly greater and has an immense effect on our financial obligations. 15
The undersigned is a mortgagor at Philippine Savings Bank with an outstanding balance of TWO
MILLION FOUR HUNDRED THOUSAND EIGHT HUNDRED ELEVEN and 03/100
(Php2,40[0],811.03) at an interest rate of 21% per annum.
Letters of reconsideration were constantly sent to you to grant us lower interest rate. However, no
assistance with regard to that request has been extended to us. In view of this, I am requesting for a
14
transfer of our loan from PSBank Head Office to PSBank Mabini Branch. This transfer is purposely
intended for an appeal [for] a lower interest rate. 16 ACaEcH
Being a mortgagor of PSBank, I have [been] repeatedly asking for a reduction of your interest rate.
However, my request has been denied since the term I started. Many banks offer a much lower
interest rate and fair business transactions (e.g., Development Bank of Singapore [which] offers 13%
p.a. interest rate).
In this connection, once more, I am requesting for a reduction of the interest rate applied to my loan
to maintain our business relationship. 17
Basic is the rule that there can be no contract in its true sense without the mutual
assent of the parties. If this consent is absent on the part of one who contracts, the
act has no more efficacy than if it had been done under duress or by a person of
unsound mind. Similarly, contract changes must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the
case of loan contracts, the interest rate is undeniably always a vital component, for it
can make or break a capital venture. Thus, any change must be mutually agreed upon,
otherwise, it produces no binding effect. 18 cITAaD
Escalation clauses are generally valid and do not contravene public policy. They are common
in credit agreements as means of maintaining fiscal stability and retaining the value of money
on long-term contracts. To prevent any one-sidedness that these clauses may cause, we have
held in Banco Filipino Savings and Mortgage Bank v. Judge Navarro 19 that there should be
a corresponding de-escalation clause that would authorize a reduction in the interest rates
corresponding to downward changes made by law or by the Monetary Board. As can be
gleaned from the parties' loan agreement, a de-escalation clause is provided, by virtue of
which, petitioner had lowered its interest rates.
Nevertheless, the validity of the escalation clause did not give petitioner the unbridled right
to unilaterally adjust interest rates. The adjustment should have still been subjected to the
mutual agreement of the contracting parties. In light of the absence of consent on the part
of respondents to the modifications in the interest rates, the adjusted rates cannot bind them
notwithstanding the inclusion of a de-escalation clause in the loan agreement.
The order of refund was based on the fact that the increases in the interest rate were null and
void for being violative of the principle of mutuality of contracts. The amount to be refunded
refers to that paid by respondents when they had no obligation to do so. Simply put,
petitioner should refund the amount of interest that it has illegally imposed upon
respondents. Any deficiency in the payment of the obligation can be collected by petitioner
in a foreclosure proceeding, which it already did. IDTHcA
On the matter of damages, we agree with petitioner. Moral damages are not recoverable
simply because a contract has been breached. They are recoverable only if the party from
whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive
or abusive. Likewise, a breach of contract may give rise to exemplary damages only if the
guilty party acted in a fraudulent or malevolent manner. 20
In this case, we are not sufficiently convinced that fraud, bad faith, or wanton disregard of
contractual obligations can be imputed to petitioner simply because it unilaterally imposed
the changes in interest rates, which can be attributed merely to bad business judgment or
attendant negligence. Bad faith pertains to a dishonest purpose, to some moral obliquity, or
to the conscious doing of a wrong, a breach of a known duty attributable to a motive, interest
or ill will that partakes of the nature of fraud. Respondents failed to sufficiently establish this
requirement. Thus, the award of moral and exemplary damages is unwarranted. In the same
vein, respondents cannot recover attorney's fees and litigation expenses. Accordingly, these
awards should be deleted. 21
However, as regards the above mentioned award for refund to respondents of their interest
payments in excess of 17% per annum, the same should include legal interest. In Eastern
Shipping Lines, Inc. v. Court of Appeals, 22 we have held that when an obligation is
breached, and it consists in the payment of a sum of money, the interest on the amount of
damages shall be at the rate of 12% per annum, reckoned from the time of the filing of the
complaint. 23 ACTEHI
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Decision dated
August 27, 2009 and the Resolution dated August 4, 2010 of the Court of Appeals in CA-
G.R. CV No. 86445 are AFFIRMED WITH MODIFICATIONS, such that the award for
moral damages, exemplary damages, attorney's fees, and litigation expenses is DELETED,
and the order of refund in favor of respondents of interest payments made in excess of 17%
per annum shall bear interest of 12% per annum from the time of the filing of the complaint
until its full satisfaction.
SO ORDERED.
15
[G.R. No. 118248. April 5, 2000.]
DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS,
VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA,
DISTRICT III, respondents.
De Borja Medialdea Bello Guevarra Separio & Gerodias for petitioner.
Jesus E. Mendoza and Oscar I. Mercado for private respondent.
SYNOPSIS
On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with
Encarnacion Bartolome, which option must be exercised within a period of two years from
the signing thereof. Petitioner undertook to pay P3,000.00 a month as consideration for the
reservation of its option. The contract also provided that in case petitioner chose to lease the
property, it may take actual possession of the premises. In such an event, the lease shall be
for a period of six years, renewable for another six years. Petitioner regularly paid the
reservation fee to Encarnacion until her death in January 1990. Thereafter, petitioner paid
the reservation fees to private respondent, being the sole heir of Encarnacion. Private
respondent, however, refused to accept these payments. On March 14, 1990, petitioner
served upon private respondent a notice that it was exercising its option to lease the property,
and tendered the rental fee for the month of March. Again, Victor refused to accept the
tendered rental fee and to surrender possession of the property to petitioner. Petitioner thus
opened a savings account with the China Banking Corporation in the name of private
respondent and deposited therein the rental and reservation fees. When petitioner tried to
register and annotate the contract on the title of the subject property, the respondent Register
of Deeds refused to register or annotate the same. Hence, petitioner filed a complaint for
specific performance and damages against private respondent and the Register of Deeds,
before the Regional Trial Court of Valenzuela. After trial on the merits, the trial court
dismissed the complaint. On appeal, the Court of Appeals affirmed in toto the decision of
the trial court. Hence, this petition.
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 the performance by others was contemplated,
death does not terminate the contract or excuse non-performance. In the case at bar, there
was 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 private respondent to insist that he is not a party to the contract because of the
clear provision of Article 1311 of the Civil Code. 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 are valid and binding against her is also valid and binding as against
him. Moreover, the subject matter of the contract is a lease, which is a property right.
cACDaH
SYLLABUS
1. CIVIL LAW; CONTRACTS; HEIRS ARE BOUND BY CONTRACTS ENTERED
INTO BY THEIR PREDECESSOR-IN-INTEREST; EXCEPTIONS. — 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 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.
2. ID.; ID.; ID.; INTRANSMISSIBLE RIGHTS; EXPLAINED. — The nature of
intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: "Among
contracts which are intransmissible are those which are purely personal, either by provision of law,
such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom,
such as those requiring special personal qualifications of the obligor. It may also be stated that
contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute
a charge against his estate. Thus, where the client in a contract for professional services of a lawyer
died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services
under the contract to the probate court, substituted the minors as parties for his client, it was held
that the contact could not be enforced against the minors; the lawyer was limited to a recovery on
the basis of quantum meruit." In American jurisprudence, "(W)here acts stipulated in a contract
require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion,
integrity, or other personal qualification of one or both parties, the agreement is of a personal nature,
and terminates on the death of the party who is required to render such service."
3. ID.; ID.; DEATH DOES NOT TERMINATE A CONTRACT OR EXCUSE NON-
PERFORMANCE THEREOF WHERE THE CONTRACT, BY ITS TERMS, SHOWS THAT
PERFORMANCE BY OTHERS WAS CONTEMPLATED. — It has 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 promissor's personal representative.
Contracts to perform personal acts which cannot be as well performed by others are discharged by
the death of the promissor. Conversely, where the service or act is of such a character that it may as
well be performed by another, or where the contract, by its 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
16
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.
4. ID.; ID.; HEIR SUCCEEDS TO WHAT RIGHTS HIS PREDECESSOR-IN-INTEREST
HAD AND WHAT IS VALID AND BINDING AGAINST THE LATTER IS ALSO VALID
AND BINDING AGAINST HIM. — As early as 1903, it was held that "(H)e who contracts does
so for himself and his heirs." In 1952, it was ruled that if the predecessor was duty-bound to reconvey
land to another, and at his death the reconveyance had not been made, the heirs can be compelled to
execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot
escape the legal consequence of a transaction entered into by their predecessor-in-interest because
they have inherited the property subject to the liability affecting their common ancestor. 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. This is clear from Parañaque Kings Enterprises
vs. Court of Appeals, where the Court rejected a similar defense — . . . .
5. ID.; ID.; NON-PERFORMANCE OF A CONTRACT IS NOT EXCUSED BY DEATH
OF PARTY WHEN OTHER PARTY HAS PROPERTY INTEREST IN SUBJECT MATTER
THEREOF. — In the case at bar, the subject matter of the contract is a lease, which is a property
right. The death of a party does not excuse nonperformance of a contract which involves a property
right, and the rights and obligations thereunder pass to the personal representatives of the deceased.
Similarly, nonperformance is not excused by the death of the party when the other party has a
property interest in the subject matter of the contract. Under both Article 1311 of the Civil Code and
jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy.
EDCcaS
6. ID.; ID.; CONTRACT OF LEASE WITH OPTION TO BUY; PRIVATE
RESPONDENT HAS OBLIGATION TO SURRENDER POSSESSION OF LAND AND
LEASE THE PREMISES TO PETITIONER. — The payment by petitioner of the reservation fees
during the two-year period within which it had the option to lease or purchase the property is not
disputed. In fact, the payment of such reservation fees, except those for February and March, 1990
were admitted by Victor. Petitioner also paid the P15,000.00 monthly rental fee on the subject
property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of
Victor as the sole heir of Encarnacion Bartolome, for the months of March to July 30, 1990, or a
total of five (5) months, despite the refusal of Victor to turn over the subject property. Likewise,
petitioner complied with its duty to inform the other party of its intention to exercise its option to
lease through its letter dated March 12, 1990, well within the two-year period for it to exercise its
option. Considering that at the time Encarnacion Bartolome had already passed away, it was
legitimate for petitioner to have addressed its letter to her heir. It appears, therefore, that the exercise
by petitioner of its option to lease the subject property was made in accordance with the contractual
provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender
possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the
Contract of Lease with Option to Buy.
7. LABOR AND SOCIAL LEGISLATION; TENANCY ISSUE; NOT FOR SUPREME
COURT TO PASS UPON IN PRESENT PETITION. — Coming now to the issue of tenancy, we
find that this is not for this Court to pass upon in the present petition. We note that the Motion to
Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and
that such denial was never made the subject of an appeal. As the lower court stated in its Order, the
alleged right of the tenant may well be ventilated in another proceeding in due time.
DECISION
YNARES-SANTIAGO, J p:
This is a petition for review on certiorari seeking the reversal of the December 5, 1994
Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings
Corporation vs. Victor U. Bartolome, et al.", 1 affirming in toto the January 4, 1993 Decision
of the Regional Trial Court of Valenzuela, Branch 172, 2 which dismissed Civil Case No.
3337-V-90 and ordered petitioner to pay P30,000.00 as attorney’s fees. cdrep
The subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by private respondent Victor U.
Bartolome’s deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title
No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of
one of the textile plants of petitioner and, as such, was seen by the latter as a potential
warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with
Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with
purchase the subject land, which option must be exercised within a period of two years
counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a
month as consideration for the reservation of its option. Within the two-year period,
petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its
desire to exercise its option. The contract also provided that in case petitioner chose to lease
the property, it may take actual possession of the premises. In such an event, the lease shall
be for a period of six years, renewable for another six years, and the monthly rental fee shall
be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion
until her death in January 1990. Thereafter, petitioner coursed its payment to private
17
respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused
to accept these payments.
Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all
the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of
Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of
Title No. V-14249 in the name of Victor Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was
exercising its option to lease the property, tendering the amount of P15,000.00 as rent for
the month of March. Again, Victor refused to accept the tendered rental fee and to surrender
possession of the property to petitioner.
Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking
Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the
P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of
February and March.
Petitioner also tried to register and annotate the Contract on the title of Victor to the
property. Although respondent Register of Deeds accepted the required fees, he nevertheless
refused to register or annotate the same or even enter it in the day book or primary register.
Thus, on April 23, 1990, petitioner filed a Complaint for specific performance and damages
against Victor and the Register of Deeds, 3 docketed as Civil Case No. 3337-V-90 which was
raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for
the surrender and delivery of possession of the subject land in accordance with the Contract
terms; the surrender of title for registration and annotation thereon of the Contract; and the
payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as
exemplary damages and P300,000.00 as attorney’s fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss 4 was filed
by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject
property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction
of the lower court over the property and invoked the Comprehensive Agrarian Reform Law
to protect his rights that would be affected by the dispute between the original parties to the
case.
On May 18, 1990, the lower court issued an Order 5 referring the case to the Department of
Agrarian Reform for preliminary determination and certification as to whether it was proper
for trial by said court.
On July 4, 1990, the lower court issued another Order 6 referring the case to Branch 172 of
the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the
Department of Agrarian Reform issued a letter-certification stating that referral to it for
preliminary determination is no longer required.
On July 16, 1990, the lower court issued an Order denying the Motion to Intervene, 7 holding
that Lanozo’s rights may well be ventilated in another proceeding in due time.
After trial on the merits, the RTC of Valenzuela, branch 172 rendered its Decision on January
4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as
attorney’s fees. On appeal to the CA, the Decision was affirmed in toto.
Hence, the instant Petition assigning the following errors:
(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION
ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE.
(B)
SECOND ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF
OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME
PERSONALLY.
(C)
THIRD ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT
WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC.
(D)
FOURTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE
OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR
18
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-
APPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEY’S FEES. 8
The issue to be resolved in this case is whether or not the Contract of Lease with Option to
Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon
her death or whether it binds her sole heir, Victor, even after her demise.
Both the lower court and the Court of Appeals held that the said contract was terminated
upon the death of Encarnacion Bartolome and did not bind Victor because he was not a
party thereto.
Article 1311 of the Civil Code provides, as follows-
"ARTICLE 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.
xxx xxx xxx."
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.
The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is
as follows: cdrep
"Among contracts which are intransmissible are those which are purely personal, either by provision
of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising
therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated
that contracts for the payment of money debts are not transmitted to the heirs of a party, but
constitute a charge against his estate. Thus, where the client in a contract for professional services of
a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional
services under the contract to the probate court, substituted the minors as parties for his client, it was
held that the contract could not be enforced against the minors; the lawyer was limited to a recovery
on the basis of quantum meruit." 9
In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of
special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or
other personal qualification of one or both parties, the agreement is of a personal nature, and
terminates on the death of the party who is required to render such service." 10
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 promissor’s personal representative. Contracts to perform personal acts
which cannot be as well performed by others are discharged by the death of the promissor.
Conversely, where the service or act is of such a character that it may as well be performed
by another, or where the contract, by its terms, shows that performance by others was
contemplated, death does not terminate the contract or excuse nonperformance. 11
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.
As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." 12
In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another,
and at his death the reconveyance had not been made, the heirs can be compelled to execute
the proper deed for reconveyance. This was grounded upon the principle that heirs cannot
escape the legal consequence of a transaction entered into by their predecessor-in-interest
because they have inherited the property subject to the liability affecting their common
ancestor. 13
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.
14 This is clear from Parañaque Kings Enterprises vs. Court of Appeals, 15 where this Court
rejected a similar defense —
With respect to the contention of respondent Raymundo that he is not privy to the lease
contract, not being the lessor nor the lessee referred to therein, he could thus not have
violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the
shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the
obligations of the lessor under the lease contract. Moreover, he received benefits in the form
of rental payments. Furthermore, the complaint, as well as the petition, prayed for the
annulment of the sale of the properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by petitioner of its right of first
refusal.
19
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary,
if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the property over which petitioner
would like to assert its right of first option to buy.
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. 16
Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by
the subject Contract of Lease with Option to Buy.
That being resolved, we now rule on the issue of whether petitioner had complied with its
obligations under the contract and with the requisites to exercise its option. The payment by
petitioner of the reservation fees during the two-year period within which it had the option
to lease or purchase the property is not disputed. In fact, the payment of such reservation
fees, except those for February and March, 1990 were admitted by Victor. 17 This is clear
from the transcripts, to wit —
"ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly made in January 1990 just
indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then
we will admit all.
COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:
Reservation fee, Your Honor. There was no payment with respect to payment of rentals."
18
Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing
the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the
sole heir of Encarnacion Bartolome, 19 for the months of March to July 30, 1990, or a total
of five (5) months, despite the refusal of Victor to turn over the subject property. 20
Likewise, petitioner complied with its duty to inform the other party of its intention to
exercise its option to lease through its letter dated March 12, 1990, 21 well within the two-
year period for it to exercise its option. Considering that at that time Encarnacion Bartolome
had already passed away, it was legitimate for petitioner to have addressed its letter to her
heir.
It appears, therefore, that the exercise by petitioner of its option to lease the subject property
was made in accordance with the contractual provisions. Concomitantly, private respondent
Victor Bartolome has the obligation to surrender possession of and lease the premises to
petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy.
Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in
the present petition. We note that the Motion to Intervene and to Dismiss of the alleged
tenant, Andres Lanozo, was denied by the lower court and that such denial was never made
the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant
may well be ventilated in another proceeding in due time.
WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED.
The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional
Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one
rendered ordering private respondent Victor Bartolome to:
(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of
Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-
interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy;
(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent
Register of Deeds for registration and annotation thereon of the subject Contract of Lease with
Option to Buy;
(c) pay costs of suit.
Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract
of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon
submission by petitioner of a copy thereof to his office. cdll
SO ORDERED.
20
[G.R. No. 179382. January 14, 2013.]
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, petitioners, vs.
THE BOY SCOUT * OF THE PHILIPPINES, AIB SECURITY AGENCY, INC.,
CESARIO PEÑA, * AND VICENTE GADDI, respondents.
DECISION
PERLAS-BERNABE, J p:
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision 1 and August
16, 2007 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No. 75978. The
dispositive portion of the said Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 rendered
by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the effect that only
defendants AIB Security Agency, Inc., Cesario Peña and Vicente Gaddi are held jointly and severally
liable to pay plaintiffs-appellees Spouses Benjamin C. Mamaril and Sonia [P.] Mamaril the amount of
Two Hundred Thousand Pesos (P200,000.00) representing the cost of the lost vehicle, and to pay
the cost of suit. The other monetary awards are DELETED for lack of merit and/or basis. cCSHET
Defendant-Appellant Boy Scout of the Philippines is absolved from any liability.
SO ORDERED. 3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators
since 1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of
the Philippines' (BSP) compound located at 181 Concepcion Street, Malate, Manila for a fee
of P300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all these
vehicles were parked inside the BSP compound. The following morning, however, one of
the vehicles with Plate No. DCG 392 was missing and was never recovered. 4 According to
the security guards Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency,
Inc. (AIB) with whom BSP had contracted 5 for its security and protection, a male person
who looked familiar to them took the subject vehicle out of the compound. SICDAa
On November 20, 1996, Sps. Mamaril filed a complaint 6 for damages before the Regional
Trial Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and Gaddi. In support
thereof, Sps. Mamaril averred 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. Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands
for a conference to settle the matter. They therefore prayed that Peña and Gaddi, together
with AIB and BSP, be held liable for: (a) the value of the subject vehicle and its accessories
in the aggregate amount of P300,000.00; (b) P275.00 representing daily loss of
income/boundary reckoned from the day the vehicle was lost; (c) exemplary damages; (d)
moral damages; (e) attorney's fees; and (f) cost of suit.
In its Answer, 7 BSP denied any liability contending that not only did Sps. Mamaril directly
deal with AIB with respect to the manner by which the parked vehicles would be handled,
but the parking ticket 8 itself expressly stated that the "Management shall not be responsible
for loss of vehicle or any of its accessories or article left therein." It also claimed that Sps.
Mamaril erroneously relied on the Guard Service Contract. Apart from not being parties
thereto, its provisions cover only the protection of BSP's properties, its officers, and
employees. DTAaCE
In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the
selection, training and supervision of its security guards while Peña and Gaddi claimed that
the person who drove out the lost vehicle from the BSP compound represented himself as
the owners' authorized driver and had with him a key to the subject vehicle. Thus, they
contended that Sps. Mamaril have no cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision 9 dated November 28, 2001 in favor
of Sps. Mamaril. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines
and AIB Security Agency, with security guards Cesario Pena and Vicente Gaddi: —
1. To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus
accessories of P50,000.00; aHATDI
2. To pay jointly and severally to the plaintiffs the daily [loss] of the income/boundary of the
said jeepney to be reckoned [from] its loss up to the final adjudication of the case, which is P275.00
a day;
3. To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of P50,000.00;
5. To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court the
amount of P1,500.00 per appearance; and
21
6. To pay cost.
SO ORDERED. 10 SEIcAD
The RTC 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.
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from
P250,000.00 to P200,000.00. 11
Only BSP appealed the foregoing disquisition before the CA. aSTcCE
The CA Ruling
In its assailed Decision, 12 the CA affirmed the finding of negligence on the part of security
guards Peña and Gaddi. However, it absolved BSP from any liability, holding that the Guard
Service Contract is purely between BSP and AIB and that there was nothing therein that
would indicate any obligation and/or liability on the part of BSP in favor of third persons,
such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP was substantially a
contract of lease whereby the former paid parking fees to the latter for the lease of parking
slots. As such, the lessor, BSP, was not an insurer nor bound to take care and/or protect the
lessees' vehicles. HEDSIc
On the matter of damages, the CA deleted the award of P50,000.00 representing the value
of the accessories inside the lost vehicle and the P275.00 a day for loss of income in the
absence of proof to support them. It also deleted the award of moral and exemplary damages
and attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007
Resolution. 13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING
RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM ANY LIABILITY. IcAaSD
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT
RULED THAT THE GUARD SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT
OF THE PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING THAT
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 PETITIONERS HEREIN. HSCcTD
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE
INTERPRETATION OF LAW WHEN IT CONSIDERED THE AGREEMENT BETWEEN
BOY SCOUT OF THE PHILIPPINES AND PETITIONERS A CONTRACT OF LEASE,
WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE CARE OF
[PETITIONERS'] VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT
PETITIONERS ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S FEES. 14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle
based on the Guard Service Contract and the parking ticket it issued; and (2) the CA erred
in deleting the RTC awards of damages and attorney's fees. HcaDTE
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter for the same. Similarly,
Article 2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
22
preexisting contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle
was the negligent act of security guards Peña and Gaddi in allowing an unidentified person
to drive out the subject vehicle. Proximate cause has been defined as that cause, which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury or loss, and without which the result would not have occurred. 15 Moreover, Peña and
Gaddi failed to refute Sps. Mamaril's contention 16 that they readily admitted being at fault
during the investigation that ensued. CDcHSa
On the other hand, the records are bereft of any finding of negligence on the part of BSP.
Hence, no reversible error was committed by the CA in absolving it from any liability for the
loss of the subject vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article 2180 17 of the Civil Code
apply in this case. It is uncontested that Peña and Gaddi were assigned as security guards by
AIB to BSP pursuant to the Guard Service Contract. Clearly, therefore, no employer-
employee relationship existed between BSP and the security guards assigned in its premises.
Consequently, the latter's negligence cannot be imputed against BSP but should be attributed
to AIB, the true employer of Peña and Gaddi. 18 HTaSEA
In the case of Soliman, Jr. v. Tuazon, 19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen
or security guards, the agency is the employer of such guards and watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the employer agency, and not to the clients
or customers of such agency. As a general rule, a client or customer of a security agency has no hand
in selecting who among the pool of security guards or watchmen employed by the agency shall be
assigned to it; the duty to observe the diligence of a good father of a family in the selection of the
guards cannot, in the ordinary course of events, be demanded from the client whose premises or
property are protected by the security guards. The fact that a client company may give instructions
or directions to the security guards assigned to it, does not, by itself, render the client responsible as
an employer of the security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in the contract
for services entered into with the security agency. 20 aIcDCT
Nor can it be said that a principal-agent relationship existed between BSP and the security
guards Peña and Gaddi as to make the former liable for the latter's complained act. Article
1868 of the Civil Code states that "[b]y the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter." The basis for agency therefore is representation, 21 which
element is absent in the instant case. Records show that BSP merely hired the services of
AIB, which, in turn, assigned security guards, solely for the protection of its properties and
premises. Nowhere can it be inferred in the Guard Service Contract that AIB was appointed
as an agent of BSP. Instead, what the parties intended was a pure principal-client relationship
whereby for a consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that 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.
Such contention cannot be sustained. EDSHcT
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. CHDAaS
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. 22 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. 23 As
correctly found by the CA: cHEATI
23
First, the Guard Service Contract between defendant-appellant BSP and defendant AIB
Security Agency is purely 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. 24 aCHDAE
Moreover, the Court concurs with the finding of the CA that the contract between the parties
herein was one of lease 25 as defined under Article 1643 26 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.
27 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.
28 cACHSE
In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP
compound for a monthly fee of P300.00 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 "[t]he 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 "[t]he 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. TAECaD
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, 29 without the knowledge and consent of BSP. Accordingly, the mishandling of the
parked 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. 30
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" 31 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, 32 then the
contract serves as the law between them. 33 Besides, the parking fee of P300.00 per month
or P10.00 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. EHCDSI
On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the
subject vehicle had accessories worth around P50,000.00, she failed to present any receipt to
substantiate her claim. 34 Neither did she submit any record or journal that would have
established the purported P275.00 35 daily earnings of their jeepney. It is axiomatic that
actual damages must be proved with reasonable degree of certainty and a party is entitled
only to such compensation for the pecuniary loss that was duly proven. Thus, absent any
competent proof of the amount of damages sustained, the CA properly deleted the said
awards. 36
Similarly, the awards of moral and exemplary damages and attorney's fees were properly
disallowed by the CA for lack of factual and legal bases. While the RTC granted these awards
in the dispositive portion of its November 28, 2001 decision, it failed to provide sufficient
justification therefor. 37
WHEREFORE, premises considered, the instant petition is DENIED. The May 31, 2007
Decision and August 16, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 75978
are AFFIRMED. AacCHD
SO ORDERED.
24
[G.R. No. 118509. December 1, 1995.]
LIMKETKAI SONS MILLING, INC., petitioner, vs. COURT OF APPEALS, BANK
OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, respondents.
Amadeo D. Seno for petitioner.
Manahan, Cornago, De Vera, Aquino & Associates for respondent National Book Store, Inc.
Alfonso B. Verzosa for respondent Bank of P.I.
SYLLABUS
1. CIVIL LAW; CONTRACTS; PHASES AND PERFECTION; CASE AT BAR. — The
phases that a contract goes through may be summarized as follows: a. preparation, conception or
generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties; b. perfection or birth of the contract, which is the moment when the parties come to
agree on the terms of the contract, and c. consummation or deaths, which is the fulfillment or
performance of the terms agreed upon in the contract. In the case at bar, the negotiation or
preparation stage of the sale started with the authority given by Philippine Remnants to BPI to sell
the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker
Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and
finally (d) the negotiations with Aromin and Albano at the BPI offices. The perfection of the contract
took place when Aromin and Albano, acting agreed to sell and Alfonso Lim with Albino Limketkai,
acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside
from this there was the earlier agreement between petitioner and the authorized broker. There was a
concurrence of offer and acceptance, on the object, and on the cause thereof.
2. ID.; ID.; SALE; VALIDITY NOT AFFECTED BY REQUISITE FORM. — The fact that
the deed of sale still had to be signed and notarized does not mean that no contract had already been
perfected. A sale of land is valid regardless of the form it may have been entered into. The requisite
form under Article 1458 of the Civil Code is merely for greater efficacy or convenience as the failure
to comply therewith does not affect the validity and binding effect of the act between the parties. If
the law requires a document or other special form, as in the sale of real property, the contracting
parties may compel each other to observe that form, once the contract has been perfected. Their
right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code).
IacHAE
3. ID.; ID.; ID.; REAL PROPERTY; STATUTE OF FRAUDS; WAIVED BY CROSS-
EXAMINATION. — That the sale involved real property and therefore the statute of frauds is
applicable, it was held in Abrenica v. Gonda that contracts infringing the Statute of Frauds are ratified
when the defense fails to object, or asks questions on cross-examination. In the instant case, counsel
for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase
price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the
litigated contract. Under the Abrenica rule, even assuming that parol evidence was initially
inadmissible, the same became competent and admissible because of the cross-examination, which
elicited evidence proving the evidence of a perfected contract. The cross-examination on the contract
is deemed a waiver of the defense of the Statute of Frauds. The reason for the rule is "if the answers
of those witnesses were stricken out, the cross-examination could have no object whatsoever, and if
the questions were put to the witnesses and answered by them, they could only be taken into account
by connecting them with the answers given by those witnesses on direct examination." Moreover,
under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to
the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The
memorandum may be found in several writings, not necessarily in one document. The memorandum
or memoranda is/are written evidence that such a contract was entered into.
4. ID.; ID.; ID.; BUYER IN BAD FAITH. — NBS is not an innocent purchaser for value. It
acted in bad faith. Respondent NBS ignored the notice of lis pendens annotated on the title when it
bought the lot. It was the willingness and design of NBS to buy property already sold to another party
which led BPI to dishonor the contract with Limketkai. Petitioner cites several badges of fraud
indicating that BPI and NBS conspired to prevent petitioner from paying the agreed price and getting
possession of the property but it is the very nature of the deed of absolute sale between BPI and NBS
which, however, clearly negates any allegation of good faith on the part of the buyer. Instead of the
vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee
to proceed against the vendor if the title to the land turns out to be defective as when the land belongs
to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which
NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS
alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's
title be found defective. IDcAHT
5. REMEDIAL LAW; EVIDENCE; WITNESS; CREDIBILITY; FINDINGS OF TRIAL
COURT RESPECTED AS AGAINST THAT OF APPELLATE COURT. — On the matter of
credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court
are contrary to each other, We held: The trial court directly observed the demeanor and manner of
testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic
notes.
DECISION
MELO, J p :
The issue in the petition before us is whether or not there was a perfected contract between
petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI)
covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio
Bagong Ilog, Pasig City, Metro Manila.
25
Branch 151 of the Regional Trial Court of the National Capital Region stationed in Pasig
ruled that there was a perfected contract of sale petitioner and BPI. It stated that there was
mutual consent between the parties; the subject matter is definite; and the consideration was
determined. It concluded that all the elements of a consensual contract are attendant. It
ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS)
while the case was pending and the nullification of a title issued in favor of said respondent
NBS.
Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was
perfected because there was no concurrence of the three requisites enumerated in Article
1318 of the Civil Code. The decision of the trial court was reversed and the complaint
dismissed.
Hence, the instant petition.
Shorn of the interpretations given to the acts of those who participated in the disputed sale,
the findings of facts of the trial court and the Court of Appeals narrate basically the same
events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co.,
Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. One
such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at
Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.
On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority
by BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by
the owners of the Philippine Remnants.
Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land.
On July 8, 1988, petitioner's officials and Revilla were given permission by Rolando V.
Aromin, BPI Assistant Vice-President, to enter and view the property they were buying.
On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein
petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went
to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst.
Vice-President Aromin. Petitioner asked that the price of P1,000.00 per square meter be
reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed
that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the authority
to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this
juncture that there is no dispute over petitioner's being the first comer and the buyer to be
first served.
Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis,
Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was
no harm in trying to ask for payment on terms because in previous transactions, the same
had been allowed. It was the understanding, however, that should the term payment be
disapproved, then the price shall be paid in cash.
It was Albano who dictated the terms under which the installment payment may be
approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI
through Merlin Albano embodying the payment initially of 10% and the remaining 90%
within a period of 90 days.
Two or three days later, petitioner learned that its offer to pay on terms had been frozen.
Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00
to Albano. The payment was refused because Albano stated that the authority to sell that
particular piece of property in Pasig had been withdrawn from his unit. The same check was
tendered to BPI Vice-President Nelson Bona who also refused to receive payment.
An action for specific performance with damages was thereupon filed on August 25, 1988
by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had
sold the property under litigation to NBS on July 14, 1989. The complaint was thus amended
to include NBS.
On June 10, 1991, the trial court rendered judgment in the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of
the Philippine Islands and National Book Store, In.: —
1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of
the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of
National Book Store, Inc., null and void;
2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of
Title which may have been issued in favor of National Book Store, Inc. by virtue of the
aforementioned Deed of Sale dated July 14, 1989;
3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000,00 to
execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00
per square meter; in default thereof, the Clerk of this Court is directed to execute the said deed;
4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether
executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and charges,
to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer certificate of title in
the name of plaintiff;
26
5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the
plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as
attorney's fees and litigation expenses, both with interest at 12% per annum from date hereof;
6. On the cross-claim of defendant bank against National Book Store, ordering the latter to
indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and
7. Dismissing the counterclaims of the defendants against the plaintiff and National Book
Store's cross-claim against defendant bank.
Costs against defendants.
As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P],
Rasul, and Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed
petitioner's complaint for specific performance and damages.
The issues raised by the parties revolve around the following four questions:
(1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to
the subject matter of the contract and the cause of the obligation?
(2) Were the bank officials involved in the transaction authorized by BPI to enter into the
questioned contract?
(3) Is there competent and admissible evidence to support the alleged meeting of the minds?
(4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good
faith?
There is no dispute in regard to the following: (a) that BPI as trustee of the property of
Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for
P1,000.00 per square meter; (1)) that Philippine Remnants confirmed the authority to sell of
Revilla and the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the
former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin
allowed the broker and the buyer to inspect the property; and (e) that BPI was formally
informed about the broker having procured a buyer.
The controversy revolves around the interpretation or the significance of the happenings or
events at this point.
Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its
top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano
and Rolando V. Aromin at the BPI offices.
Respondents, however, contend that what transpired on this date were part of continuing
negotiations to buy the land and not the perfection of the sale. The arguments of respondents
center on two propositions — (1) Vice-Presidents Aromin and Albano had no authority to
bind BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay
under terms instead of full payment in cash constitutes a counter-offer which negates the
existence of a perfected contract.
The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by
the record.
At the start of the transactions, broker Revilla by himself already had full authority to sell the
disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on
an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with
Revilla's testimony that the authority given to him was to sell and not merely to look for a
buyer as contended by respondents.
Revilla testified that at the time he perfected the agreement to sell the litigated property, he
was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding
and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction.
If BPI could give the authority to sell to a licensed broker, we see no reason to doubt the
authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage
and administer real estate property.
Respondent BPI alleges that sales of trust property need the approval of a Trust Committee
made up of top bank officials. It appears from the record that this trust committee meets
rather infrequently and it does not have to pass on regular transactions.
Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised
the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985
and was the head supervising officer of real estate matters. Aromin had been with the BPI
Trust Department since 1968 and had been involved in the handling of properties of
beneficial owners since 1975 (tsn., December 3, 1990, p. 5).
Exhibit 10 of BPI, the February 15, 1989 letter from Senior Vice-President Edmundo
Barcelon, while purporting to inform Aromin of his poor performance, is an admission of
BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants,
insurance policies, installment receivables, management fees, quitclaims, and other matters
involving real estate transactions. His immediate superior, Vice-President Merlin Albano had
been with the Real Estate Division for only one week but he was present and joined in the
discussions with petitioner.
27
There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the
incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises.
Aromin acted in a perfectly natural manner on the transaction before him with not the
slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to
the public as the officer routinely handling real estate transactions and, as Trust Officer,
entering into contracts to sell trust properties.
Respondents state and the record shows that the authority to buy and sell this particular trust
property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did
not have any authority to act as alleged, there was no need to withdraw authority which he
never possessed.
Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited
Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon
McIntosh vs. Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit:
Accordingly a banking corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent acting within the general
scope of his authority even though, in the particular case, the agent is secretly abusing his
authority and attempting to perpetrate a fraud upon his principal or some other person for
his own ultimate benefit.
In the present case, the position and title of Aromin alone, not to mention the testimony and
documentary evidence about his work, leave no doubt that he had full authority to act for
BPI in the questioned transaction. There is no allegation of fraud, nor is there the least
indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin
because it appeared that a top official of the bank was personally interested in the sale of the
Pasig property and did not like Aromin's testimony. Aromin was charged with poor
performance but his dismissal was only sometime after he testified in court. More than two
long years after the disputed transaction, he was still Assistant Vice-President of BPI.
The records show that the letter of instruction dated June 14, 1988 from the owner of
Philippine Remnants Co. regarding the sale of the firm's property was addressed to Aromin.
The P1,000.00 figure on the first page of broker Revilla's authority to sell was changed to
P1,100.00 by Aromin. The price was later brought down again to P1,000.00, also by Aromin.
The permission given to petitioner to view the lot was signed by Aromin and honored by the
BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a
buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was
perfected was with Aromin and Vice-President Albano. Albano and Aromin were the ones
who assured petitioner Limketkai's officers that term payment was possible. It was Aromin
who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment
on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with
the cash sale. Everything in the record points to the full authority of Aromin to bind the
bank, except for the self-serving memoranda or letters later produced by BPI that Aromin
was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in
this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully
clothed with authority to bind BPI.
Respondents' second contention is that there was no perfected contract because petitioner's
request to pay on terms constituted a counter-offer and that negotiations were still in
progress at that point.
Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial.
Among his statements is one to the effect that —
. . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-
offered to sell the property at P1,100.00 per square meter but after the usual haggling, we finally
agreed to sell the property at the price of P100.0 per square meter . . .
Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of
P1,000.00 per square meter, Aromin answered:
Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir.
The requirements in the payment of the purchase price on terms instead of cash were
suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified
cash payment, the possibility of paying on terms was referred to the Trust Committee but
with the mutual agreement that "if the proposed payment on terms will not be approved by
our Trust Committee, Limketkai should pay in cash . . . the amount was no longer subject to
the approval or disapproval of the Committee, it is only on the terms." (Ibid, p. 19) This is
incontrovertibly established in the following testimony of Aromin:
A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority
says the payment must be in cash basis, what transpired later on?
B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting
the covering proposal if they will be allowed to pay on terms. They requested us to give them a guide
on how to prepare the corresponding letter of proposal. I recall that, upon the request of Mr. Albino
Limketkai, we dictated a guide on how to word a written firm offer that was to be submitted by Mr.
Lim to the bank setting out the terms of payment but with the mutual agreement that if his proposed
payment on terms will not be approved by our trust committee. Limketkai should pay the price in
cash.
28
Q. And did buyer Limketkai agree to pay m cash in case the offer of terms will be cash
(disapproved).
A. Yes. sir.
Q. At the start, did they show their willingness to pay cash?
A. Yes sir.
Q. You said that the agreement on terms was to be submitted to the trust committee for
approval, are you telling the Court that what was to be approved by the trust committee was the
provision on the payment on terms?
A. Yes. sir.
Q. So the amount was no longer subject to the approval or disapproval of the committee, it is
only on the terms?
A. Yes sir.
The record shows that if payment was in cash, either broker Revilla or Aromin had full
authority. But because petitioner took advantage of the suggestion of Vice-President Albano,
the matter was sent to higher officials. Immediately upon learning that payment on terms
was frozen and/or denied, Limketkai exercised his right within the period given to him and
tendered payment in full. The BPI rejected the payment.
In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of
Appeals (238 SCRA 602 [1994]) to bolster its case. Contrariwise, it would seem that the legal
principles found in said case strengthen and support petitioner's submission that the contract
was perfected upon the meeting of the minds of the parties.
The negotiation or preparation stage started with the authority given by Philippine Remnants
to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine
Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the
inspection of the property and finally (d) the negotiations with Aromin and Albano at the
BPI offices.
The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed
to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to
buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier
agreement between petitioner and the authorized broker. There was a concurrence of offer
and acceptance, on the object, and on the cause thereof.
The phases that a contract goes through may be summarized as follows:
a. preparation, conception or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;
b. perfection or birth of the contract, which is the moment when the parties come to agree on
the terms of the contract; and
c. consummation or death, which is the fulfillment or performance of the terms agreed upon
in the contract (Toyota Shaw Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995).
But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug:
A contract undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective contracting
parties indicate interest in the contract to the time the contract is concluded (perfected) The
perfection of the contract takes place upon the concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or
commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with
certain formalities prescribed by law, such as in a donation of real property, is essential in order to
make the act valid, the prescribed form being thereby an essential element thereof. The stage of
consummation begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation. In sales, particularly, to which the topic for discussion about the
case at bench belongs, the contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a thing or right to another,
called the buyer, over which the latter agrees.
In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual
antecedents similar to this case, the Court, through Justice Aquino (later to be Chief Justice),
quoting authorities, upheld the perfection of the contract of sale thusly:
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law governing the form
of contracts." (Art. 1475 Ibid).
xxx xxx xxx
"Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
29
absolute. A qualified acceptance constitutes a counter-offer" (Art. 1319, Civil Code). "An
acceptance may be express or implied" (Art. 1320, Civil Code).
xxx xxx xxx
"It is true that an acceptance may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance
is positively and unequivocally to accept the offer. whether such request is granted or not, a
contract is formed."' (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79,
Williston on Contracts).
xxx xxx xxx
. . . the vendor's change in a phrase of the offer to purchase, which change does not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender or
a counter-offer." (Stuart vs. Franklin Life Ins. Co., supra.)
(at pp. 362-363; 365-366.)
In the case at bench, the allegation of NBS that there was no concurrence of the offer and
acceptance upon the cause of the contract is belied by the testimony of the very BPI official
with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The
fact that the deed of sale still had to be signed and notarized does not mean that no contract
had already been perfected. A sale of land is valid regardless of the form it may have been
entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form
under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the
failure to comply therewith does not affect the validity and binding effect of the act between
the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p.
552). If the law requires a document or other special form, as in the sale of real property, the
contracting parties may compel each other to observe that form, once the contract has been
perfected. Their right may be exercised simultaneously with action upon the contract (Article
1359, Civil Code).
Regarding the admissibility and competence of the evidence adduced by petitioner,
respondent Court of Appeals ruled that because the sale involved real property, the statute
of frauds is applicable.
In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held
that contracts infringing the Statute of Frauds are ratified when the defense fails to object,
or asks questions on cross-examination. The succinct words of Justice Araullo still ring in
judicial cadence:
As no timely objection or protest was made to the admission of the testimony of the plaintiff
with respect to the contract; and as the motion to strike out said evidence came too late; and,
furthermore, as the defendants themselves, by the cross-questions put by their counsel to
the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that
evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from
having erred in taking it into consideration and basing his judgment thereon, notwithstanding
the fact that it was ordered to be stricken out during the trial, merely corrected the error he
committed in ordering it to be so stricken out and complied with the rules of procedure
hereinbefore cited.
In the instant case, counsel for respondents cross-examined petitioner's witnesses at length
on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin
and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in
a number of cases, among them Talosig vs. Vda. de Nieba, 43 SCRA 472 [1972]), even
assuming that parol evidence was initially inadmissible, the same became competent and
admissible because of the cross-examination, which elicited evidence proving the evidence
of a perfected contract. The cross-examination on the contract is deemed a waiver of the
defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993
Revised Edition, supra p. 563).
The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses
were stricken out, the cross-examination could have no object whatsoever and if the
questions were put to the witnesses and answered by them, they could only be taken into
account by connecting them with the answers given by those witnesses on direct
examination" (pp. 747-748).
Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of
contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum
evidencing the contract. The memorandum may be found in several writings, not necessarily
in one document. The memorandum or memoranda is/are written evidence that such a
contract was entered into.
We cite the findings of the trial court on this matter:
In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract
of the sale is not necessary so long as the agreement to sell real property is evidenced by a written
note or memorandum, embodying the essentials of the contract and signed by the party charged or
his agent. Thus, it has been held:
30
"The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not
require that the contract itself be written. The plain test of Article 1403 paragraph (2) is clear that a
written note or memorandum, embodying the essentials of the contract and signed by the party
charges, or his agent suffices to make the verbal agreement enforceable, taking it out of the operation
of the statute. (Emphasis supplied)
xxx xxx xxx
"In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and
telegram (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was
appended as Exhibit A to plaintiffs opposition to the motion to dismiss. The letter, transcribed above
in part, together with the one marked as Appendix B, constitute an adequate memorandum of the
transaction. They are signed by the defendant-appellant; refer to the property sold as a Lot in Puerto
Princesa, Palawan, covered by T.C.T. No. 62, give its area as 1,825 square meters and the purchase
price of four (P4.00) pesos per square meter payable in cash. We have in them, therefore, all the
essential terms of the contract and they satisfy the requirements of the Statute of Frauds.
While there is no written contract of sale of the Pasig property executed by BPI in favor of
plaintiff, there are abundant notes and memoranda extant in the records of this case
evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth
Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at
the price of P1,000.00 per square meter giving 2% commission to the broker and instructing
that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad,
(Exh. P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing
Assetrade Co., authorizing the latter to sell the property at the initial quoted price of
P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After
the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin
allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On
July 9, 1938, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that
he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai
Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso
Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the
bank, through Merlin Albano, confirming their transaction regarding the purchase of the
subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the
bank a check for P33,056,000.00 covered by Check No. CAS 10883, dated July 18, 1988. On
July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only
if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and
memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the
Supreme Court, citing American cases with approval, held:
"'No particular form of language or instrument is necessary to constitute a memorandum or note in
writing under the statute of frauds; any document or writing, formal or informal, written either for
the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the
requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200,
and infra sec. 201-205, is a sufficient memorandum or note. A memorandum may be written as well
with lead pencil as with pen and ink. It may also be filled in on a printed form.' (37 C.J.S., 653-654).
"'The note or memorandum required by the statute of frauds need not be contained in a single
document, nor, when contained in two or more papers, need each paper be sufficient as to contents
and signature to satisfy the statute. Two or more writings properly connected may be considered
together, matters missing or uncertain in one may be supplied or rendered certain by another, and
their sufficiency will depend on whether, taken together, they meet the requirements of the statute as
to contents and the requirements of the statutes as to signature, as considered respectively infra secs.
179-200 and secs. 201-215."'
The credibility of witnesses is also decisive in this case. The trial court directly observed the
demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely
on the transcript of stenographic notes.
In this regard, the court of origin had this to say:
Apart from weighing the merits of the evidence of the parties, the Court had occasion to
observe the demeanor of the witnesses they presented. This is one important factor that
inclined the Court to believe in the version given by the plaintiff because its witnesses,
including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were
straight forward, candid and unhesitating in giving their respective testimonies. Upon the
other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their
answers to cross examination questions. Moreover, the witnesses for BPI and NBS
contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr.
Revilla was merely an evidence by which a broker may convince a prospective buyer that he
had authority to offer the property mentioned therein for sale and did not bind the bank. On
the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the
authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the
bank being signed by two class "A" signatories and that the bank cannot back out from its
commitment in the authority to sell to Mr. Revilla.
While Alfredo Ramos of NBS insisted that he did not know personally and was not
acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos
was his friend and that they have even discussed in one of the luncheon meetings the matter
of the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not
a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling
31
card states that he was a consultant to the chairman of the Pacific Rim Export and Holdings
Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing
his being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible
implication that he committed some underhanded maneuvers in manipulating to have the
subject property sold to NBS, instead of being sold to the plaintiff. (pp. 454-455, Original
RTC Record.)
On the matter of credibility of witnesses where the findings or conclusions of the Court of
Appeals and the trial court are contrary to each other, the pronouncement of the Court in
Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing:
It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility
of witnesses are entitled to great respect from the appellate courts because the trial court had an
opportunity to observe the demeanor of witnesses while giving testimony which may indicate their
candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility
of witnesses, that being a question of fact not property raised in a petition under Rule 45, the Court
has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the
Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses.
On the fourth question of whether or not NBS is an innocent purchaser for value, the record
shows that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the
lot. It was the willingness and design of NBS to buy property already sold to another party
which led BPI to dishonor the contract with Limketkai.
Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent
petitioner from paying the agreed price and getting possession of the property:
1. The sale was supposed to be done through an authorized broker, but top officials of BPI
personally and directly took over this particular sale when a close friend became interested.
2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo
Ramos, was his friend; that they had lunch meetings before this incident and discussed NB S's
purchase of the lot. Barcelon's father was a business associate of Ramos.
3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner
would drop the case and give up the lot. Feliciano went to petitioners office and haggled with Alfonso
Lim but failed to convince him inspite of various and increasing offers.
4. In a place where big and permanent buildings abound, NBS had constructed only a
warehouse marked by easy portability. The warehouse is bolted to its foundations and can easily be
dismantled.
It is the very nature of the deed of absolute sale between BPI and NBS which, however,
clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee
insisting that the vendor guarantee its title to the land and recognize the right of the vendee
against the vendor if the title to the land turns out to be defective as when the land belongs
to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses
which NBS may incur in the event the title turns out to be vested in another person are to
be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS
against it should BPI's title be found defective.
NBS, in its reply memorandum, does not refute or explain the above circumstance squarely.
It simply cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 (1912])
and argues that the enumeration there is exclusive. The decision in said case plainly states
"the following are some of the circumstances attending sales which have been denominated
by courts (as) badges of fraud." There are innumerable situations where fraud is manifested.
One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that
time up to the present and into the future.
The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing
the amended complaint to implead NBS, sheriff's fees, registration fees, plane fare and hotel
expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded,
damages for the profits and opportunity losses caused to petitioner's business in the amount
of P10,000,000.00.
We rule that the profits and the use of the land which were denied to petitioner because of
the non-compliance or interference with a solemn obligation by respondents is somehow
made up by the appreciation in land values in the meantime.
Prescinding from the above, we rule that there was a perfected contract between BPI and
petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority
to bind the bank; that the evidence supporting the sale is competent and admissible; and that
the sale of the lot to NBS during the trial of the case was characterized by bad faith.
WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED
and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of
The National Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED
except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby
DELETED.
SO ORDERED.
32
[G.R. No. 125761. April 30, 2003.]
SALVADOR P. MALBAROSA, petitioner, vs. HON. COURT OF APPEALS and
S.E.A. DEVELOPMENT CORP., respondents.
E.G. Ferry Law Office for petitioner.
Romulo Mabanta Buenaventura Sayoc & Delos Angeles for private respondent.
SYNOPSIS
Petitioner was ordered by the trial court to return the subject car assigned to him by respondent for
his failure to agree on the letter-offer of the respondent for an incentive compensation in the amount
of P251,057.67, in order that the said car shall be transferred to him. The trial court ruled that there
existed no perfected contract between the petitioner and the respondent for failure of the petitioner
to effectively notify the respondent of his acceptance of the letter-offer before the respondent
withdrew the same. The Court of Appeals (CA) affirmed the decision of the trial court. Hence, this
petition for review on certiorari. aIDHET
In affirming the decision of the CA, the Supreme Court ruled that 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. 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. The acceptance of the offeree of the offer after knowledge of the revocation
or withdrawal of the offer is inefficacious.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS; REQUISITES OF;
CONSENT; MANIFESTED BY MEETING OF THE OFFER AND ACCEPTANCE UPON THE
THING AND CAUSE WHICH ARE TO CONSTITUTE THE CONTRACT. — 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. HScDIC
2. ID.; ID.; ID.; PERFECTED ONLY FROM THE TIME AN ACCEPTANCE OF AN OFFER IS
MADE KNOWN TO THE OFFEROR. — 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.
3. ID.; ID.; ID.; ACCEPTANCE NOT MADE IN THE MANNER PRESCRIBED BY OFFEROR
IS NOT EFFECTIVE BUT CONSTITUTES A COUNTER-OFFER WHICH THE OFFEROR MAY
ACCEPT OR REJECT. — 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 in 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. TIEHSA
4. ID.; ID.; ID.; NOT PERFECTED IF OFFEROR REVOKES ITS OFFER AND THE
REVOCATION IS THE FIRST TO REACH THE OFFEREE. — 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.
The acceptance by the offeree of the offer after knowledge of the revocation or withdrawal of the offer is
inefficacious. cDCaTH
5. ID.; ID.; ID.; WHEN OFFEROR HAS NOT FIXED A PERIOD FOR OFFEREE TO ACCEPT
THE OFFER AND THE OFFER IS MADE TO A PERSON PRESENT, ACCEPTANCE MUST BE
MADE IMMEDIATELY; CASE AT BAR. — When the offeror has not fixed a period for the offeree to
accept the offer, and the offer is made to a person present, the acceptance must be made immediately. In this
case, the respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to the
petitioner its March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The respondent, thus,
had the option to withdraw or revoke the offer, which the respondent did on April 4, 1990.
DECISION
CALLEJO, SR., J p:
Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group
of companies wholly-owned and controlled by respondent S.E.A. Development Corporation
(SEADC). The petitioner Salvador P. Malbarosa was the president and general manager of
Philtectic Corporation, and an officer of other corporations belonging to the SEADC group
of companies. The respondent assigned to the petitioner one of its vehicles covered by
Certificate of Registration No. 04275865 1 described as a 1982 model Mitsubishi Gallant
Super Saloon, with plate number PCA 180 for his use. He was also issued membership
certificates in the Architectural Center, Inc. Louis Da Costa was the president of the
respondent and Commonwealth Insurance Co., Inc., while Senen Valero was the Vice-
Chairman of the Board of Directors of the respondent and Vice-Chairman of the Board of
Directors of Philtectic Corporation.
33
Sometime in the first week of January 1990, the petitioner 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. 2
Louis Da Costa met with the petitioner on two occasions, one of which was on February 5,
1990 to discuss the amount of the 1989 incentive compensation petitioner was entitled to,
and the mode of payment thereof. Da Costa ventured that the petitioner would be entitled
to an incentive compensation in the amount of P395,000.
On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed
to the petitioner 3 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. (Although you have indicated a value of P180,000.00, our survey in the market indicates that
P220,000.00 is a reasonable reflection of the value of the car.)
- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center, Inc. will be
transferred to you. (Although we do not as yet have full information as to the value of these shares, we have
been informed that the shares have traded recently in the vicinity of P60,000.00.) 4
The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on the space
provided therefor and the date thereof on the right bottom portion of the letter, thus:
Agreed:
SALVADOR P. MALBAROSA
Date: _____________________ 5
On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the
March 14, 1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when
he read the letter and learned that he was being offered an incentive compensation of only
P251,057.67. He told Da Costa that he was entitled to no less than P395,000 as incentive
compensation. The petitioner refused to sign the letter-offer on the space provided therefor. He
received the original of the letter and wrote on the duplicate copy of the letter-offer retained by Da
Costa, the words: "Rec'd original for review purposes." 6 Despite the lapse of more than two weeks,
the respondent had not received the original of the March 14, 1990 Letter-offer of the respondent
with the conformity of the petitioner on the space provided therefor. The respondent decided to
withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the respondent
approved a resolution authorizing the Philtectic Corporation and/or Senen Valero to demand from
the petitioner for the return of the car and to take such action against the petitioner, including the
institution of an action in court against the petitioner for the recovery of the motor vehicle. 7
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. 8 The petitioner received the original copy of the
letter on the same day. IDTSaC
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. 9 The petitioner enclosed a xerox copy of the original copy
of the March 14, 1990 Letter-offer of the respondent, bearing his signature on the space
provided therefore dated March 28, 1990. 10
With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a
complaint against the petitioner, as defendant, for recovery of personal property with
replevin with damages and attorney's fees, thus:
WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court that:
1. Before hearing and upon approval of plaintiff's bond, a writ be issued immediately for the seizure of
the vehicle described in paragraph 3 hereof, wherever it may be found, and for its delivery to plaintiff;
2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the possession
of the said motor vehicle, and, in the alternative, that defendant must deliver such motor vehicle to plaintiff or
pay to plaintiff the value thereof in case delivery cannot be made;
3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount of
P1,000.00 per day from date of demand until the motor vehicle is returned to plaintiff.
4. After trial, hold the defendant liable to plaintiff for attorney's fees and costs of litigation in the amount
of P100,000.00.
Plaintiffs likewise prays for such other reliefs as are just and equitable under the
circumstances. 11
On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. 12
Correspondingly, the writ of replevin was issued on May 8, 1990. 13
34
On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession
of the vehicle in question. On May 15, 1990, the petitioner was able to recover the possession
of the vehicle upon his filing of the counter-bond. 14
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. Philtectic Corporation had no right to withdraw the offer of the
respondent SEADC. The petitioner testified that after conferring with his counsel, he had
decided to accept the offer of the respondent, and had affixed his signature on the space
below the word "Agree" in the March 14, 1990 Letter-offer, thus:
Agreed:
(Sgd.)
SALVADOR P. MALBAROSA
Date: 3-28-90 15
The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he
was agreeable to an incentive compensation of P218,000 to be settled by the respondent by
transferring the car to the petitioner valued at P180,000 and P38,000 worth of shares of the
Architectural Center, Inc. on the claim of Da Costa that respondent was almost bankrupt.
However, the petitioner learned that the respondent was financially sound; hence, he had
decided to receive his incentive compensation of P395,000 in cash. 16 On March 29, 1990,
the petitioner called up the office of Louis Da Costa to inform the latter of his acceptance
of the letter-offer of the respondent. However, the petitioner was told by Liwayway
Dinglasan, the telephone receptionist of Commonwealth Insurance Co., that Da Costa was
out of the office. The petitioner asked Liwayway to inform Da Costa that he had called him
up and that he had already accepted the letter-offer. Liwayway promised to relay the message
to Da Costa. Liwayway testified that she had relayed the petitioner's message to Da Costa
and that the latter merely nodded his head.
After trial, the court a quo rendered its Decision 17 on July 28, 1992, the dispositive portion
of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant:
1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its value of
P220,000 in case delivery cannot be made;
2. pay plaintiff SEADC P50,000 as and for attorney's fees; and
3. Cost of litigation.
SO ORDERED. 18
The trial court stated that there existed no perfected contract between the petitioner and the
respondent on the latter's March 14, 1990 Letter-offer for failure of the petitioner to
effectively notify the respondent of his acceptance of said letter-offer before the respondent
withdrew the same. The respondent filed a motion for the amendment of the decision of the
trial court, praying that the petitioner should be ordered to pay to the respondent reasonable
rentals for the car. On October 10, 1992, the court a quo issued an order, granting plaintiff's
motion and amending the dispositive portion of its July 28, 1992 Decision:
1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the rate of
P1,000.00 per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of the motor vehicle; and
2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff under
the Counterbond issued pursuant to this case.
SO ORDERED. 19
The petitioner appealed from the decision and the order of the court a quo to the Court of
Appeals.
On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision
of the trial court. The dispositive portion of the decision reads:
WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the Regional Trial
Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that the period of payment
of rentals at the rate of P1,000.00 per day shall be from the time this decision becomes final until actual delivery
of the motor vehicle to plaintiff-appellee is made.
Costs against the defendant-appellant.
SO ORDERED. 21
The Court of Appeals stated that the petitioner had not accepted the respondent's March 14,
1990 Letter-offer before the respondent withdrew said offer on April 4, 1990.
The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals.
The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on
his part of the March 14, 1990 Letter-offer of the respondent; 22 and (b) whether or not
there was an effective withdrawal by the respondent of said letter-offer.
The petition is dismissed.
35
Anent the first issue, the petitioner posits that the respondent had given him a reasonable
time from March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer.
He had already accepted the offer of the respondent when he affixed his conformity thereto
on the space provided therefor on March 28, 1990 23 and had sent to the respondent
corporation on April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his
conformity to the offer of the respondent; hence, the respondent can no longer demand the
return of the vehicle in question. He further avers that he had already impliedly accepted the
offer when after said respondent's offer, he retained possession of the car. cEHITA
For its part, the respondent contends that the issues raised by the petitioner are factual. The
jurisdiction of the Court under Rule 45 of the Rules of Court, as amended, is limited to
revising and correcting errors of law of the CA. As concluded by the Court of Appeals, there
had been no acceptance by the petitioner of its March 14, 1990 Letter-offer. The receipt by
the petitioner of the original of the March 14, 1990 Letter-offer for review purposes
amounted merely to a counter-offer of the petitioner. The findings of the Court of Appeals
are binding on the petitioner. The petitioner adduced no proof that the respondent had
granted him a period within which to accept its offer. The latter deemed its offer as not
accepted by the petitioner in light of petitioner's ambivalence and indecision on March 16,
1990 when he received the letter-offer of respondent.
We do not agree with the petitioner.
Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
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. 24 To
produce a contract, there must be acceptance of the offer which may be express or implied
25 but must not qualify the terms of the offer. The acceptance must be absolute,
unconditional and without variance of any sort from the offer. 26
The acceptance of an offer must be made known to the offeror. 27 Unless the offeror knows
of the acceptance, there is no meeting of the minds of the parties, no real concurrence of
offer and acceptance. 28 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 in the absence
of the meeting of the minds on the altered type of acceptance. 29 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. 30 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. 31 The acceptance by the offeree of the offer after knowledge of the revocation or
withdrawal of the offer is inefficacious. The termination of the contract when the
negotiations of the parties terminate and the offer and acceptance concur, is largely a
question of fact to be determined by the trial court. 32
In this case, the respondent made its offer through its Vice-Chairman of the Board of
Directors, Senen Valero. On March 16, 1990, Da Costa handed over the original of the
March 14, 1990 Letter-offer of the respondent to the petitioner. The respondent required
the petitioner to accept the offer by affixing his signature on the space provided in said letter-
offer and writing the date of said acceptance, thus foreclosing an implied acceptance or any
other mode of acceptance by the petitioner. However, when the letter-offer of the
respondent was delivered to the petitioner on March 16, 1990, he did not accept or reject the
same for the reason that he needed time to decide whether to reject or accept the same. 33
There was no contract perfected between the petitioner and the respondent corporation. 34
Although the petitioner claims that he had affixed his conformity to the letter-offer on March
28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on
April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said
March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his
acceptance to said offer. But then, the respondent, through Philtectic Corporation, had
already withdrawn its offer and had already notified the petitioner of said withdrawal via
respondent's letter dated April 4, 1990 which was delivered to the petitioner on the same
day. Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-
offer of the respondent. HcaDIA
36
The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or
reject its offer does not persuade. It must be underscored that there was no time frame fixed by
the respondent for the petitioner to accept or reject its offer. When the offeror has not fixed a
period for the offeree to accept the offer, and the offer is made to a person present, the
acceptance must be made immediately. 35 In this case, the respondent made its offer to the
petitioner when Da Costa handed over on March 16, 1990 to the petitioner its March 14, 1990
Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the option
to withdraw or revoke the offer, which the respondent did on April 4, 1990.
Even if it is assumed that the petitioner was given a reasonable period to accept or reject the
offer of the respondent, the evidence on record shows that from March 16, 1990 to April 3,
1990, the petitioner had more than two weeks which was more than sufficient for the petitioner
to accept the offer of the respondent. Although the petitioner avers that he had accepted the
offer of the respondent on March 28, 1990, however, he failed to transmit to the respondent the
copy of the March 14, 1990 Letter-offer bearing his conformity thereto. Unless and until the
respondent received said copy of the letter-offer, it cannot be argued that a contract had already
been perfected between the petitioner and the respondent.
On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned
and controlled subsidiary of the respondent, had no authority to withdraw the offer of the
respondent. The resolution of the respondent authorizing Philtectic Corporation to take such
action against the petitioner including the institution of an action against him for the recovery of
the subject car does not authorize Philtectic Corporation to withdraw the March 14, 1990 Letter-
offer of the respondent. The withdrawal by Philtectic Corporation on April 4, 1990 of the offer
of the respondent was ineffective insofar as the petitioner was concerned. The respondent, for
its part, asserts that the petitioner had failed to put in issue the matter of lack of authority of
Philtectic Corporation to withdraw for and in behalf of the respondent its March 14, 1990 Letter-
offer. It contends that the authority of Philtectic Corporation to take such action including the
institution of an action against the petitioner for the recovery of the car necessarily included the
authority to withdraw the respondent's offer. Even then, there was no need for the respondent
to withdraw its offer because the petitioner had already rejected the respondent's 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.
We do not agree with the petitioner. 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 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:
Q Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any?
A After that resolution was passed. (sic) I instructed our lawyers to proceed with the demand letter for
the recovery of the vehicle.
Q Do you know if that demand letter was every (sic) made by your lawyer?
A Yes. I know that because I was the one who gave the instruction and before it was finally served on
Malbarosa, I was shown about the demand letter.
C/Pltf.: Your honor, or rather . . . Mr. Valero, if I show you a copy of that letter, will you be able to identify
the same?
A Yes, sir.
Q I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr. Salvador P.
Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by ________. What
relation, if any, does that demand letter have with the demand letter that you are talking about?
A It's the same one I am referring to.
C/Pltf.: Your honor, we manifest that the letter has been previously marked as our exh. "D".
Q Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written in behalf
of Philtectic Corporation. Do you have any knowledge why it was written this way?
A Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation for the one
using the car, it was only deemed proper that Philtectic will be the one to send the demand letter.
Q In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion made to the
offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car with plate# M-PCA-189
assigned to you by the company, and the membership share in the Architectural Center Inc., be transferred to
you in settlement. You previously stated about this March 14 letter. What relation, if any, does this second
paragraph with the letter-offer that you previously stated.
C/Def.: Objection, your honor. This witness is incompetent . . .
C/Pltf.: But he was the one who instructed, your honor.
Court: LET the witness answer.
Witness: (Stenographer reads back the previous question asked by counsel for him to answer, and . . . .)
A It is the same. 36
IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is
AFFIRMED. SO ORDERED.
37
[G.R. No. L-25494. June 14, 1972.]
NICOLAS SANCHEZ, plaintiff-appellee, vs. SEVERINA RIGOS, defendant-
appellant.
Santiago F . Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; CONTRACT TO BUY AND SELL; OPTION WITHOUT
CONSIDERATION; CASE AT BAR. — Where both parties indicated in the instrument in the caption, as an
"Option to Purchase," and under the provisions thereof, the defendant "agreed, promised and committed"
herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to
indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct
from the price" stipulated for the sale of the land, it is not a "contract to buy and sell." It merely granted plaintiff
an "option" to buy.
2. ID.; ID.; ID.; ID.; ARTICLES 1354 AND 1479, NEW CIVIL CODE; APPLICABILITY. — It
should be noted that: Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479
refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell."
3. ID.; ID.; REQUISITE OF A UNILATERAL PROMISE IN ORDER TO BIND PROMISOR;
BURDEN OF PROOF REST UPON PROMISEE. — In order that a unilateral promise may be "binding"
upon the promisor, Article 1479 requires the concurrence of a condition namely, that the promise be
"supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor
to comply with the promise, unless the former establishes the existence of said distinct consideration. In other
words, the promisee has the burden of proving such consideration.
4. ID.; ID.; WHERE A UNILATERAL PROMISE TO SELL GENERATED TO A BILATERAL
CONTRACT OF PURCHASE AND SALE; ARTICLES 1324 AND 1479, NCC., NO DISTINCTION. —
This Court itself, in the case of Atkins, Kroll & Co., Inc. vs. Cua Hian Tek (102 Phil., 948), decided later than
Southwestern Sugar & Molasses Co. vs. Atlantic & Pacific Co., 97 Phil., 249, saw no distinction between Articles
1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one
sued upon was involved, treating such promise as an option which, although not binding as a contract in itself
for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. In other words, since there may be no valid contract without a cause or consideration promisor is
not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract
of sale.
5. REMEDIAL LAW; PLEADINGS AND PRACTICE; JUDGMENT ON THE PLEADINGS;
IMPLIED ADMISSION. — Defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer.
6. STATUTORY CONSTRUCTION; INTERPRETATION OF PROVISIONS OF SAME LAW;
CARDINAL RULE. — The view that an option to sell can still be withdrawn, even if accepted, if the same is
not supported by any consideration, has the advantage of avoiding a conflict between Article 1324 — on the
general principles on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal rule of
statutory construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between
the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. vs. Atlantic
Gulf & Pacific Co., supra, holding that Article 1324 is modified by Article 1479 of the Civil Code, in effect,
considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the
contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in
both the second paragraph of Article 1479 and Article 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same
principle.
DECISION
CONCEPCION, J p:
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals,
which certified the case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina
Rigos executed an instrument, entitled "Option to Purchase," whereby Mrs. Rigos "agreed,
promised and committed . . . to sell" to Sanchez, for the sum of P1,510.00, a parcel of land
situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija,
and more particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall
be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the
property" within the stipulated period. Inasmuch as several tenders of payment of the sum
of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March
12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija
and commenced against the latter the present action, for specific performance and damages.
After the filing of defendant's answer — admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract between
the parties "is a unilateral promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void" — on February 11, 1964,
both parties, assisted by their respective counsel, jointly moved for a judgment on the
pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for
Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute,
38
in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay
P200.00, as attorney's fees, and the costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
which provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
"An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price."
In his complaint plaintiff alleges that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land
described in the option, copy of which was annexed to said pleading as Annex A thereof and
is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the
contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479.
Although defendant had really "agreed, promised and committed" herself to sell the land to
the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself" to buy
said property Said Annex A does not bear out plaintiff's allegation to this effect. What is
more, since Annex A has bean made "an integral part" of his complaint, the provisions of
said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
And both parties so understood it, as indicated by the caption, "Option to Purchase," given
by them to said instrument. Under the provisions thereof, the defendant "agreed, promised
and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but
there is nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated for the sale
of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said
consideration, and this would seem to be the main factor that influenced its decision in
plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479
refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to
sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding" upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a consideration
distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the
promise, unless the former establishes the existence of said distinct consideration. In other words,
the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the
existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special
defense, the absence of said consideration for her promise to sell and, by joining in the petition for a
judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's
answer. Indeed, as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:
"One who prays for judgment on the pleadings without offering proof as to the truth of hie own
allegations, and without giving the opposing party an opportunity to introduce evidence, must be
understood to admit the truth of all the material and relevant allegations of the opposing party, and
to rest his motion for judgment on those allegations taken together with such of his own as are
admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210)." (Emphasis supplied.).
This view was reiterated in Evangelista V. De la Rosa 4 and Mercy's Incorporated v.
Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6
from which We quote:
"The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for
the sum of P30,000 under the terms stated above has no legal effect because it is not supported by
any consideration and in support thereof it invokes article 1479 of the new Civil Code, The article
provides:.
'ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
'An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the price.'
"On the other hand, appellee contends that, even granting that the 'offer of option' is not supported
by any consideration, that option became binding on appellant when the appellee gave notice to it of
its acceptance, and that having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee
invokes article 1324 of the Civil Code which provides:
'ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon consideration, as something paid or promised.'
39
"There is no question that under article 1479 of the new Civil Code 'an option to sell,' or 'a promise
to buy or to sell,' as used in said article, to be valid must be 'supported by a consideration distinct
from the price.' This is clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, 'an
accepted unilateral promise' can only have a binding effect if supported by a consideration, which
means that the option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. Here it is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance made of it by appellee.
"It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, 'the offer may be
withdrawn at any time before acceptance' except when the option is founded upon consideration,
but this general rule must be interpreted as modified by the provision of article 1479 above referred
to, which applies to 'a promise to buy and sell' specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a consideration distinct from the price.
"We are net oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12
Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance
as contained in our new Civil Code. But we are prevented from applying them in view of the specific
provision embodied in article 1479. While under the 'offer of option' in question appellant has
assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its
offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our
imperative duty is to apply it unless modified by Congress." 7
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8
decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw
no distinction between Articles 1324 and 1479 of the Civil Code and applied the former
where a unilateral promise to sell similar to the one sued upon here was involved, treating
such promise as an option which, although not binding as a contract in itself for lack of a
separate consideration, nevertheless generated a bilateral contract of purchase and sale upon
acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this
Court said:
"Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time. After accepting the promise and before he
exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to
buy later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and
to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just
get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract
of sale.
"Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration,
the authorities hold that.
'If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding
contract of sale, even though the option was not supported by a sufficient consideration. . . . ' (77
Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.')
'It can be taken for granted, as contended by the defendant, that the option contract was not valid
for lack of consideration. But it was, at least, an offer to sell, which was accepted by latter, and of the
acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both
acts — the offer and the acceptance — could at all events have generated a contract, if none there
was before (arts. 1254 and 1262 of the Civil Code).' (Zayco vs. Serra, 44 Phil. 331.)"
In other words, since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of
its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 — on the general
principles on contracts — and 1479 — on sales — of the Civil Code, in line with the cardinal
rule of statutory construction that, in construing different provisions of one and the same
law or code, such interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same. Indeed, the presumption is that, in the
process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers
the latter as an exception to the former, and exceptions are not favored, unless the intention
to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What
is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option
or promise supported by or founded upon a consideration, strongly suggests that the two (2)
provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all
inconsistent therewith, the view adhered to in the South western Sugar & Molasses Co. case
should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-
appellant Severina Rigos. It is so ordered.
40
[G.R. No. 111238. January 25, 1995.]
ADELFA PROPERTIES, INC., petitioner, vs. COURT OF APPEALS, ROSARIO
JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, respondents.
Bayani L. Bernardo for petitioner.
Lucas C. Carpio, Jr. for private respondents Jimenezes.
Danilo B. Benares for Emylene S. Chua.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; CONTRACT TO SELL; CONTRACT OF SALE;
DISTINGUISHED. — The distinction between the two contracts is important for in a contract of sale, the
title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of
the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where
there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. (Pingol, et al. vs. Court of Appeals, et al., G.R. No. 102909, September
6, 1993, 226 SCRA 118)
2. ID.; ID.; ID.; CONSTRUED; APPLICATION IN CASE AT BAR. — An analysis of the facts
obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that
the agreement between the parties is a contract to sell, and not an option contract or a contract of sale. There
are two features which convince the Court that the parties never intended to transfer ownership to petitioner
except upon full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided
for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does
not mention that petitioner is obliged to return possession or ownership of the property as a consequence of
non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private
respondents in the event that petitioner does not comply with its obligation. With the absence of such a
stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally
be inferred that the parties never intended to transfer ownership to the petitioner prior to completion of
payment of the purchase price. In effect, there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation
be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding
and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which
contains this kind of stipulation is considered a contract to sell. Moreover, that the parties really intended to
execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would
have been issued only upon the payment of the balance of the purchase price, as may be gleaned from
petitioner's letter dated April 16, 1990 wherein it informed private respondent that it "is now ready and willing
to pay you simultaneously with the execution of the corresponding deed of absolute sale." Secondly, it has not
been shown that there was delivery of the property, actual or constructive, made to herein petitioner. The
exclusive option to purchase is not contained in a public instrument the execution of which would have been
considered equivalent to delivery. (Article 1498, Civil Code) Neither did petitioner take actual, physical
possession of the property at any given time. It is true that after the reconstitution of private respondents'
certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be
understood as a delivery. (Article 1501, Civil Code). However, private respondents explained that there was
really no intention on their part to deliver the title to herein petitioner with the purpose of transferring
ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel
in the petition for reconstitution. The Court has no reason not to believe this explanation of private
respondents, aside from the fact that such contention was never refuted or contradicted by petitioner.
3. ID.; ID.; INTERPRETATION; CASE AT BAR. — The important task in contract interpretation is
always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged
by looking to the words they used to project that intention in their contract, all the words not just a particular
word or two, and words in context not words standing alone. (Fernandez vs. Court of Appeals, et al., G.R. No.
80231, October 18, 1988, 166 SCRA 577) Moreover, judging from the subsequent acts of the parties which will
hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. In
addition, the title of a contract does not necessarily determine its true nature. (Cruz, et al. vs. Court of Appeals,
et al., G.R. No. 50350, May 15, 1984, 129 SCRA 222) Hence, the fact that the document under discussion is
entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to
sell.
4. ID.; ID.; OPTION; CONSTRUED. — An option, as used in the law on sales, is a continuing offer
or contract by which the owner stipulates with another that the latter shall have the right to buy the property
at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted
offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property
but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his
land; he does not then agree to sell it; but he does sell something, that is, the right or privilege to buy at the
election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation
on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly
speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the
subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege
of accepting the offer and buying the property on certain terms. An agreement is only an "option" when no
obligation rests on the party to make any payment except such as may be agreed on between the parties as
consideration to support the option until he has made up his mind within the time specified. An option, and
not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within a
specified time and providing for forfeiture of money paid upon failure to make payment, where the purchaser
does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the
payments made.
5. ID.; CONTRACT; DEFINED. — A contract, like a contract to sell, involves a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or to render
some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the
41
offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute.
6. ID.; ID.; OPTION; DISTINGUISHED. — The distinction between an "option" and a contract of
sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to
sell his land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at
an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties
at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement. 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.
7. ID.; SPECIAL CONTRACTS; SALES; ACCEPTANCE; RULE. — The rule is that except where a
formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to buy or sell. Thus acceptance may be shown by the
acts, conduct, or words of a party recognizing the existence of the conduct of sale.
8. ID.; ID.; EARNEST MONEY; RULE. — 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
(Article 1482, Civil Code). 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.
9. ID.; ID.; ID.; OPTION MONEY; DISTINGUISHED. — There are clear distinctions between
earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money is
the money given as a distinct consideration for an option contract; (b) earnest money 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.
10. ID.; ID.; TENDER OF PAYMENT; CONSIDERATION; CONSTRUED. — 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. (Vda. de Zulueta, et al. vs. Octaviano, et al., G.R. No. 55350, March 28, 1983, 121
SCRA 314). 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
petitioner's obligation to pay the balance of the purchase price. The rule is different in case of an option contract
(Nietes vs. Court of Appeals, et al., L-32875, August 18, 1972, 46 SCRA 654) or in legal redemption or in a sale
with right to repurchase, (Francisco, et al. vs. Bautista, et al., L-44167, December 19, 1990, 192 SCRA 388)
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 privilege. This is because the provisions on consignation are not applicable when there
is no obligation to pay. A contract to sell, as in this case involves the performance of an obligation, not merely
the exercise of a privilege or a right. Consequently, performance or payment may be effected not by tender of
payment alone but by both tender and consignation.
11. ID.; ID.; EXTRAJUDICIAL RESCISSION; WHEN JUSTIFIED; CASE AT BAR. — 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, as in fact it has failed to
do so or even to deposit the money with the trial court when this case was originally filed therein. By reason of
petitioner's 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 dated July 27, 1990. 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. (Albea vs. Inquimboy, et al., 86 Phil. 477
(1950); Alfonso, et al. vs. Court of Appeals, et al., G.R. No. 63745, June 8, 1990, 186 SCRA 400). Furthermore,
judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission
in case of breach, (Palay, Inc., et al. vs. Clave, et al., G.R. No. 56076, September 21, 1983, 124 SCRA 638) as in
the contract involved in the present controversy. This Court is not unaware of the ruling in the University of
the Philippines vs. De los Angeles, etc., L-28602, September 29, 1970, 35 SCRA 102 that the right to rescind is
not absolute, being ever subject to scrutiny and review by the proper court. It is the Court's considered view,
however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting
party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully
impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination (Palay,
Inc., et al. vs. Clave, et al., supra). Otherwise, if said party does not oppose it, the extrajudicial rescission shall
have legal effect (Zulueta vs. Mariano, etc., et al., L-29360, January 30, 1982, 111 SCRA 206).
DECISION
REGALADO, J p:
The main issues presented for resolution in this petition for review on certiorari of the
judgment of respondent Court of Appeals, dated April 6, 1993, in CA-G.R. CV No. 34767
1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner
Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud
Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment
of the purchase price by said petitioner, and the legal effects thereof on the contractual
relations of the parties.
The records disclose the following antecedent facts which culminated in the present appellate
review, to wit: cdasia
1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the
registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer
Certificate of Title (TCT) No. 309773, 2 situated in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of
said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement"
4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855
42
square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was
allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property
from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase"
5 was executed between petitioner and private respondents, under the following terms and
conditions:
"1. The selling price of said 8,655 square meters of the subject property is TWO MILLION
EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY
(P2,856,150.00);
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an
option money shall be credited as partial payment upon the consummation of the sale and the balance
in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY
PESOS (P2,806,150.00) to be paid on or before November 30, 1989;
"3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in
accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to
be forfeited in our favor and we will refund the remaining 50% of said option money upon the sale
of said property to a third party;
"4. All expenses including the corresponding capital gains tax, cost of documentary stamps are
for the account of the VENDORS, and expenses for the registration of the deed of sale in the
Registry of Deeds are for the account of ADELFA PROPERTIES, INC."
Considering, however, that the owner's copy of the certificate of title issued to respondent
Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said
certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private
respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but
it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa
Properties, Inc. cdasia
4. Before petitioner could make payment, it received summons 6 on November 29,
1989, together with a copy of a complaint filed by the nephews and nieces of private
respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the
Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the
deed of sale in favor of Household Corporation and recovery of ownership of the property
covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed private
respondents that it would hold payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces, adding that ". . . if possible,
although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our
office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by
petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed
the suggestion of petitioner and attributed the suspension of payment of the purchase price
to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its
option contract with private respondents, and its contract of said with Jose and Dominador
Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty.
Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were
cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided
that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected
by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents
on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and
this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No.
89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No.
309773 the exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of
Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250.00,
of which P1,500,000.00 was paid to private respondents on said date, with the balance to be
paid upon the transfer of title to the specified one-half portion. LLphil
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter
that in view of the dismissal of the case against them, petitioner was willing to pay the
purchase price, and he requested that the corresponding deed of absolute sale be executed.
11 This was ignored by private respondents. cdasia
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing
therein a check for P25,000.00 representing the refund of fifty percent of the option money
paid under the exclusive option to purchase. Private respondents then requested petitioner
to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez.
12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil
Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for annulment of
contract with damages, praying, among others, that the exclusive option to purchase be
declared null and void; that defendant, herein petitioner, be ordered to return the owner's
43
duplicate certificate of title; and that the annotation of the option contract on TCT No.
309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the
agreement entered into by the parties was merely an option contract, and declaring that the
suspension of payment by herein petitioner constituted a counter-offer which, therefore, was
tantamount to a rejection of the option. It likewise ruled that herein petitioner could not
validly suspend payment in favor of private respondents on the ground that the vindicatory
action filed by the latter's kin did not involve the western portion of the land covered by the
contract between petitioner and private respondents, but the eastern portion thereof which
was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez.
The trial court then directed the cancellation of the exclusive option to purchase, declared
the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay
damages and attorney's fees to private respondents, with costs. LLpr
13. On appeal, respondent Court of Appeals affirmed in toto the decision of the court a
quo and held that the failure of petitioner to pay the purchase price within the period agreed
upon was tantamount to an election by petitioner not to buy the property; that the suspension
of payment constituted an imposition of a condition which was actually a counter-offer
amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension
of payments applies only to a contract of sale or a contract to sell, but not to an option
contract which it opined was the nature of the document subject of the case at bar. Said
appellate court similarly upheld the validity of the deed of conditional sale executed by private
respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent Court of Appeals acted with grave abuse of discretion in making its finding that
the agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent Court of Appeals
acted with grave abuse of discretion in grievously failing to consider that while the option period had
not lapsed, private respondents could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate
fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does
not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the
sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are
not only excessive, but also without bases in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell,
and not an option contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it would be
worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the
alleged option contract as a contract to sell, rather than a contract of sale. The distinction
between the two is important for in a contract of sale, the title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is
reserved in the vendor and is not to pass until the full payment of the price. In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the
full payment of the price, such payment being a positive suspensive condition and failure of
which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Thus, a deed of sale is considered absolute in nature where there
is neither a stipulation in the deed that title to the property sold is reserved in the seller until
the full payment of the price, nor one giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer
ownership to petitioner except upon full payment of the purchase price. Firstly, the exclusive
option to purchase, although it provided for automatic rescission of the contract and partial
forfeiture of the amount already paid in case of default, does not mention that petitioner is
obliged to return possession or ownership of the property as a consequence of non-payment.
There is no stipulation anent reversion or reconveyance of the property to herein private
respondents in the event that petitioner does not comply with its obligation. With the
absence of such a stipulation, although there is a provision on the remedies available to the
parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner prior to completion of payment of the purchase price. cdasia
In effect, there was an implied agreement that ownership shall not pass to the purchaser until
he had fully paid the price. Article 1478 of the Civil Code does not require that such a
stipulation be expressly made. Consequently, an implied stipulation to that effect is
considered valid and, therefore, binding and enforceable between the parties. It should be
44
noted that under the law and jurisprudence, a contract which contains this kind of stipulation
is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of
sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon
the payment of the balance of the purchase price, as may be gleaned from petitioner's letter
dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of the corresponding deed of absolute
sale."
Secondly, it has not been shown that there was delivery of the property, actual or
constructive, made to herein petitioner. The exclusive option to purchase is not contained in
a public instrument the execution of which would have been considered equivalent to
delivery. 17 Neither did petitioner take actual, physical possession of the property at any
given time. It is true that after the reconstitution of private respondents' certificate of title, it
remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such possession by the
vendee is to be understood as a delivery. 18 However, private respondents explained that
there was really no intention on their part to deliver the title to herein petitioner with the
purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of
the title only because he was their counsel in the petition for reconstitution. We have no
reason not to believe this explanation of private respondents, aside from the fact that such
contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as a perfected
contract to sell. On this particular point, therefore, we reject the position and ratiocination
of respondent Court of Appeals which, while awarding the correct relief to private
respondents, categorized the instrument as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of
the contracting parties and that task is, of course, to be discharged by looking to the words
they used to project that intention in their contract, all the words not just a particular word
or two, and words in context not words standing alone. 19 Moreover, judging from the
subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the
intention of the parties was to enter into a contract to sell. 20 In addition, the title of a
contract does not necessarily determine its true nature. 21 Hence, the fact that the document
under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text
thereof shows that it is a contract to sell. cdasia
An option, as used in the law on sales, is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed price
within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes
called an "unaccepted offer." An option is not of itself a purchase, but merely secures the
privilege to buy. 22 It is not a sale of property but a sale of the right to purchase. 23 It is
simply a contract by which the owner of property agrees with another person that he shall
have the right to buy his property at a fixed price within a certain time. He does not sell his
land; he does not then agree to sell it; but he does sell something, that is, the right or
privilege to buy at the election or option of the other party. 24 Its distinguishing characteristic
is that it imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does
not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject
matter, but is merely a contract by which the owner of property gives the optionee the right
or privilege of accepting the offer and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to
render some service. 26 Contracts, in general, are perfected by mere consent, 27 which is
manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute.
28
The distinction between an "option" and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell his land, if the
holder elects to accept them within the time limited. If the holder does so elect, he must give
notice to the other party, and the accepted offer thereupon becomes a valid and binding
contract. If an acceptance is not made within the time fixed, the owner is no longer bound
by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely
the relative rights and obligations of both parties at the time of its execution. The offer and
the acceptance are concurrent, since the minds of the contracting parties meet in the terms
of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented
by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy
and private respondents' acceptance thereof. The rule is that except where a formal
acceptance is so required, although the acceptance must be affirmatively and clearly made
and must be evidenced by some acts or conduct communicated to the offeror, it may be
made either in a formal or an informal manner, and may be shown by acts, conduct, or words
45
of the accepting party that clearly manifest a present intention or determination to accept the
offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party
recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their
property under the terms of their contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title be first reconstituted, to which
petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo,
who assisted private respondents in filing a petition for reconstitution. After the title was
reconstituted, the parties agreed that petitioner would pay either in cash or manager's check
the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of P50,000.00, with the
balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents
agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option
to purchase was prepared by petitioner and was subsequently signed by private respondents,
thereby creating a perfected contract to sell between them. cdasia
It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain,
while the acceptance thereof was absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the terms of payment was clear and
well-defined. No other significance could be given to such acts than that they were meant to
finalize and perfect the transaction. The parties even went beyond the basic requirements of
the law by stipulating that "all expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the vendors, and expenses for the registration of
the deed of sale in the Registry of Deeds are for the account of Adelfa Properties, Inc."
Hence, there was nothing left to be done except the performance of the respective
obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by both the trial
court and respondent Court of Appeals, that the offer of petitioner to deduct P500,000.00
(later reduced to P300,000.00) from the purchase price for the settlement of the civil case
was tantamount to a counter-offer. It must be stressed that there already existed a perfected
contract between the parties at the time the alleged counter-offer was made. Thus, any new
offer by a party becomes binding only when it is accepted by the other. In the case of private
respondents, they actually refused to concur in said offer of petitioner, by reason of which
the original terms of the contract continued to be enforceable. prcd
At any rate, the same cannot be considered a counter-offer for the simple reason that
petitioner's sole purpose was to settle the civil case in order that it could already comply with
its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply
therewith, except that it was being prevented from doing so because of the filing of the civil
case which, it believed in good faith, rendered compliance improbable at that time. In
addition, no inference can be drawn from that suggestion given by petitioner that it was
totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance of the
purchase price within the agreed period was attributed by private respondents to "lack of
word of honor" on the part of the former. The reason of "lack of word of honor" is to us a
clear indication that private respondents considered petitioner already bound by its obligation
to pay the balance of the consideration. In effect, private respondents were demanding or
exacting fulfillment of the obligation from herein petitioner. With the arrival of the period
agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent
upon it to perform, not merely to exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation to give
something, that is, the payment of the purchase price. The contract did not simply give
petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in
the said contract to show that petitioner was merely given a certain period within which to
exercise its privilege to buy. The agreed period was intended to give time to herein petitioner
within which to fulfill and comply with its obligation, that is, to pay the balance of the
purchase price. No evidence was presented by private respondents to prove otherwise. cdasia
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. 33 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 of
P2,806,150.00. 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.
This is not a case where no right is as yet created nor an obligation declared, as where
something further remains to be done before the buyer and seller obligate themselves. 34 An
agreement is only an "option" when no obligation rests on the party to make any payment
except such as may be agreed on between the parties as consideration to support the option
until he has made up his mind within the time specified. 35 An option, and not a contract to
purchase, is effected by an agreement to sell real estate for payments to be made within a
specified time and providing for forfeiture of money paid upon failure to make payment,
46
where the purchaser does not agree to purchase, to make payment, or to bind himself in any
way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is
not the situation obtaining in the case at bar.
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, 37 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. cdasia
In other words, the alleged option money of P50,000.00 was actually earnest money which
was intended to form part of the purchase price. The amount of P50,000.00 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. 38 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 is 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. 39
The aforequoted characteristics of earnest money are apparent in the so-called option
contract under review, even though it was called "option money" by the parties. In addition,
private respondents failed to show that the payment of the balance of the purchase price was
only a condition precedent to the acceptance of the offer or to the exercise of the right to
buy. On the contrary, it has been sufficiently established that such payment was but an
element of the performance of petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid suspension of
payment of the purchase price by petitioner and the legal consequences thereof. To justify
its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590
of the Civil Code which provides:
"ART. 1590. 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."cdasia
Respondent court refused to apply the aforequoted provision of law on the erroneous
assumption that the true agreement between the parties was a contract of option. As we have
hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily,
therefore, Article 1590 would properly apply. llcd
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the
parties herein involved only the eastern half of the land subject of the deed of sale between
petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is covered by the
contract subject of the present case. We have gone over the complaint for recovery of
ownership filed in said case 41 and we are not persuaded by the factual findings made by said
courts. At a glance, it is easily discernible that, although the complaint prayed for the
annulment only of the contract of sale executed between petitioner and the Jimenez brothers,
the same likewise prayed for the recovery of therein plaintiffs share in that parcel of land
specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming
to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of
a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance
made by private respondents that petitioner did not have to worry about the case because it
was pure and simple harassment 42 is not the kind of guaranty contemplated under the
exceptive clause in Article 1590 wherein the vendor is bound to make payment even with
the existence of a vindicatory action if the vendee should give a security for the return of the
price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we
find and hold that private respondents may no longer be compelled to sell and deliver the
47
subject property to petitioner for two reasons, that is, petitioner's 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. cdasia
The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the
dismissal of Civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner,
through its counsel, wrote private respondents expressing its willingness to pay the balance
of the purchase price upon the execution of the corresponding deed of absolute sale. At
most, that was merely a notice to pay. There was no proper tender of payment nor
consignation in this case as required by law. LLjur
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. 43 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
petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in
case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46
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 privilege. This is because the
provisions on consignation are not applicable when there is no obligation to pay. 47 A
contract to sell, as in the case before us, involves the performance of an obligation, not
merely the exercise of a privilege or 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, as in fact it has failed to do so
up to the present time, or even to deposit the money with the trial court when this case was
originally filed therein. cdasia
By reason of petitioner's 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 dated
July 27, 1990. 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. 48 Furthermore, judicial action for rescission of a
contract is not necessary where the contract provides for automatic rescission in case of
breach, 49 as in the contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50
that the right to rescind is not absolute, being ever subject to scrutiny and review by the
proper court. It is our considered view, however, that this rule applies to a situation where
the extrajudicial rescission is contested by the defaulting party. In other words, resolution of
reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial determination. 51 Otherwise, if
said party does not oppose it, the extrajudicial rescission shall have legal effect. 52
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. Its silence thereon suggests an admission of the veracity and
validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was
transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in
the contract. 54 But then, the records bear out the fact that aside from the lackadaisical
manner with which petitioner treated private respondents' letter of cancellation, it utterly
failed to seriously seek redress from the court for the enforcement of its alleged rights under
the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal action to compel specific performance
from the former. By such cavalier disregard, it has been effectively estopped from seeking
the affirmative relief it now desires but which it had theretofore disdained. LLphil
WHEREFORE, on the foregoing modificatory premises, and considering that the same
result has been reached by respondent Court of Appeals with respect to the relief awarded
to private respondents by the court a quo which we find to be correct, its assailed judgment
in CA-G.R. CV No. 34767 is hereby AFFIRMED.
SO ORDERED.
48
[G.R. No. L-12471. April 13, 1959.]
ROSARIO L. DE BRAGANZA, ET AL., petitioners, vs. FERNANDO F. DE VILLA
ABRILLE, respondent.
Oscar M. Herrera for petitioners.
R. P. Sarandi and F. Valdez Anama for respondents.
SYLLABUS
1. CONTRACTS; INCAPACITY OF PARTIES; MINORITY; WHEN CAN BE MADE THE BASIS
OF AN ACTION OF DECEIT. — The failure of the minor to disclose his minority when making a contract
does not per se, constitute a fraud which can be made the basis of an action of deceit. In order to hold the
minor liable, the fraud must be actual and not constructive.
2. ID.; ID.; ID.; LIABILITY OF MINOR UNDER THE CONTRACT. — Although the written
contract is unenforceable because of non-age, however, the minor shall make restitution to the extent that he
may have profited by the king he received.
3. ID.; ID.; ID.; ANNULMENT ; FOUR YEAR PERIOD WHEN NOT APPLICABLE. — Where
minority is set up only as a defense to an act on, without the minor asking for any positive relief from the
contract, the four-year period fixed by Article 1301 of the Civil Code may not be applied.
DECISION
BENGZON, J p:
Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court
of Appeals' decision whereby they were required solidarily to pay Fernando F. de Villa
Abrelle the sum of P10,000 plus 2% interest from October 30, 1944.
The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944
P70,000 in Japanese war notes and in consideration thereof, promised in writing (Exhibit A)
to pay him P10,000 "in legal currency of the P. I. two years after the cessation of the present
hostilities or as soon as International Exchange has been established in the Philippines", plus
2% per annum.
Because payment had not been made, Villa Abrille sued them in March 1949.
In their answer before the Manila court of first Instance, defendants claimed to have received
P40,000 only--instead of P70,000 as plaintiff asserted. They also averred that Guillermo and
Rodolfo were minors when they signed the promissory note Exhibit A. After hearing the
parties and their evidence, said court rendered judgment, which the appellate court affirmed,
in the terms above described.
There can be no question about the responsibility of Mrs. Rosario L. Braganza because the
minority of her consigners does not release her from liability; since it is a personal defense
of the minors. However, such defense will benefit her the extent of the shares for which
such minors may be responsible. (Art. 1148, Civil Code). It is not denied that at the time of
signing Exhibit A, Guillermo and Rodolfo Braganza were minors--16 and 18 respectively.
However, the Court of Appeals found them liable pursuant to the following reasoning:
". . . These two appellants did not mak e it app ear in the promissor y no te that th ey wer e no t yet of legal age. If they were really fair to th eir credi tor, th ey should have apprised him on their in cap acity, an d if the former, in spi te of the information rel ative to their age, par ted with his mo ney, th en h e shoul d be con tended with the cons equ ence of his act. B ut, that was not th e case. Perh aps d efend ants i n th eir desire to acquire mu ch n eed ed m oney, th ey r eadil y and willingly sign ed th e pr o missory note, wi thou t disclosi ng th e legal im pedi men t wi th res pect to Guill ermo and Ro dolfo. Wh en minors, like in the i nstant cas e, pretend ed to b e o f legal age, when i n fact th ey wer e no t, th ey will no t later on be p ermitted to excus e th ems elves from th e fulfillment of th e obligation con tracted by them or to hav e it annulled." (M ercado, et al. vs. Espiri tu, 37 Phil., 215.) [Emp hasis Sup pled.]
We cannot agree to the above conclusions. From the minor's failure to disclose their minority
in the same promissory note they signed, it does not follow as a legal proposition, that they
will not be permitted thereafter to assert it. They had no juridical duty to disclose their
inability. In fact, according to Corpus Juris Secundum, 43 p. 206;
" . . . . Some authorities consider that a false representation as to age inducing a contract is a
part of the contract and accordingly hold that it cannot be the basis of an action in tort.
Other authorities hold that such misrepresentation may be the basis of such an action, on
the theory that such misrepresentation is not a part of, and does not grow out of, the contract,
or that the enforcement of liability for such misrepresentation as a tort does not constitute
an indirect method of enforcing liability on the contract. In order to hold the infant liable,
however, the fraud must be actual and not constructive. It has been held that his mere silence
when making a contract as to his age does not constitute a fraud which can be made the basis
of an action of deceit." (Emphasis Supplied.)
"The fraud of which an infant may be held liable to one who contracts with him in the belief
that he is of full age must be actual not constructive, and mere failure of the infant to disclose
his age is not sufficient." (27 American Jurisprudence, p. 819.)
The Mercado case 1 cited in the decision under review is different because the document
signed therein by the minor specifically stated he was of age; here Exhibit A contained no
such statement. In other words, in the Mercado case, the minor was guilty of active
misrepresentation; whereas in this case, if the minors were guilty at all, which we doubt it is
of passive (or constructive) misrepresentation. Indeed, there is a growing sentiment in favor
of limiting the scope of the application of the Mercado ruling, what with the consideration
that the very minority which incapacitated minors from contracting should likewise exempt
them from the results of misrepresentation.
We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be
legally bound by their signatures in Exhibit A.
49
It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only
in 1951, and inasmuch as Rodolfo reached the age of majority in 1947, it was too late to
invoke it because more than 4 years had elapsed after he had becomes emancipated upon
reaching the age or majority. The provisions of Article 1301 of the Civil Code are quoted to
the effect that "an action to annul a contract by reason has reached majority age. The parties
do not specify the exact date of Rodolfo's birth. It is undenied, however, that in October
1944, he was 18 years old. On the basis of such datum, it should be held that in October
1947, he was 21 years old, and in October 1951 he was 25 years old. So that when this defense
was interposed in June 1951, four years had not yet completely elapsed from October 1947.
Furthermore, there is reason to doubt the pertinency of the 4-year period fixed by Article
1301 of the Civil Code where minority is set up only as a defense to an action, without the
minors asking for any positive relief from the contract. For one thing, they have not filed in
this case an action for annulment. 2 They merely interposed an excuse from liability.
Upon the other hand, these minors may not be entirely absolved from monetary
responsibility. In accordance with the provisions of the Civil Code, even if their written
contract is unenforceable because of non-age, they shall make restitution to the extent that
they may have profited by the money they received. (Art. 1340) There is testimony that the
funds delivered to them by Villa Abrille were used for their support during the Japanese
occupation. Such being the case, it is but fair to hold that they had profited to the extent of
the value of such money, which value has been authoritatively established in the so-called
Ballantine Schedule: in October 1944, P40.00 Japanese notes were equivalent to P1 of current
Philippine money. Wherefore, as the share of these minors was 2/3 of P70,000 or
P46,666.66, that should now return P1,166.67. 3 Their promise to pay P10,000 in Philippine
currency, (Exhibit A) can not enforced, as already stated, since they were minors incapable
of binding themselves. Their liability, to repeat, is presently declared without regard of said
Exhibit A, but solely in pursuance of Article 1304 of the Civil Code.
Accordingly, the appealed decision should be modified in the sense that Rosario Braganza
shall pay 1/3 of P10,000 i.e., P3,333.33 4 plus 2% interest from October 1944; and Rodolfo
and Guillermo Braganza shall pay jointly 5 to the same creditor the total amount of P1,166.67
plus 6% interest beginning March 7, 1949, when the complaint was filed. No costs in this
instance.

50