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Essential Requisites of Contracts: General
Provisions (Art 1318)
1. Ong Yiu vs. Court of Appeals (Liz)
June 29, 1979 | Melencio-Herrera, J | Damages
PETITIONER​: AUGUSTO B. ONG YIU
RESPONDENTS​: HONORABLE COURT OF APPEALS and
PHILIPPINE AIR LINE
SUMMARY:
Ong Yiu was passenger of PAL Cebu to Butuan City wherein he was
scheduled to attend a trial. He checked in one piece of luggage. Upon
arrival at Butuan City, his luggage could not be found. PAL Manila
advised PAL Cebu that the luggage has been over carried to Manila and
that it would be forwarded to PAL Cebu that same day. PAL Cebu then
advised PAL Butuan that the luggage will be forwarded the following
day, on scheduled morning flight. This message was not received by PAL
Butuan as all the personnel had already gone for the day. Meanwhile,
Ong Yiu was worried about the missing luggage because it contained
vital documents needed for the trial the next day so he wired PAL Cebu
demanding delivery of his luggage before noon that next day or he would
hold PAL liable for damages based on gross negligence. Early morning,
petitioner went to the Butuan Airport to inquire about the luggage but did
not wait for the arrival of the morning flight at 10am. which carried his
luggage. Dagorro, a driver, who also used to drive the petitioner
volunteered to take the luggage to the petitioner. He revealed that the
documents were lost. Ong Yiu demanded from PAL Cebu actual and
compensatory damages as an incident of breach of contract of carriage.
SC held PAL had not acted in bad faith. It exercised due diligence in
looking for petitioner’s luggage which had been miscarried. Had
petitioner waited or caused someone to wait at the airport for the arrival
of the morning flight which carried his luggage, he would have been able
to retrieve his luggage sooner. In the absence of a wrongful act or
omission or fraud, the petitioner is not entitled to moral damages. Neither
is he entitled to exemplary damages absent any proof that the defendant
acted in a wanton, fraudulent, reckless manne​r.
DOCTRINE: Bad faith means a breach of a known duty through some
motive of interest or ill will. ​In contracts, as provided for in ​Article 2232
of the Civil Code​, exemplary damages can be granted if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, which has not been proven in this case.
FACTS:
1.
Ong Yiu was a fare paying passenger of respondent PAL from
Mactan Cebu, bound for Butuan City. He was scheduled to attend
the trial of Civil Case in the Court of First Instance, on August
28-31, 1967.
2. As a passenger, he checked in one piece of luggage, a blue
"maleta". The plane left Mactan Airport at 1 PM, and arrived at
Butuan City, at past 2PM, of the same day. Upon arrival, petitioner
claimed his luggage, but it could not be found. At about 3pm, PAL
Butuan, sent a message to PAL Cebu, inquiring about the missing
luggage
3. PAL Manila wired PAL Cebu advising that the luggage had been
over carried to Manila and that it would be forwarded to Cebu on
the same day. Instructions were also given that the luggage be
immediately forwarded to Butuan City on the first available flight.
4. PAL Cebu sent a message to PAL Butuan that the luggage would be
forwarded the following day. However, this message was not
received by PAL Butuan as all the personnel had already left since
there were no more incoming flights that afternoon.
5. Ong Yiu was worried about the missing luggage because it
contained vital documents needed for trial the next day. At 10pm,
Ong Yiu demanded that PAL Cebu deliver his baggage before noon
the next day, otherwise, he would hold PAL liable for damages, and
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stating that PAL's gross negligence had caused him undue
inconvenience, worry, anxiety and extreme embarrassment.
6. This telegram was received by the Cebu PAL supervisor, but the
latter felt no need to wire petitioner that his luggage had already
been forwarded on the assumption that by the time the message
reached Butuan City, the luggage would have arrived.
7. Early in the morning of the next day, Ong Yiu went to the Butuan
Airport to inquire about his luggage. He did not wait, however, for
the morning flight which arrived at 10am which carried the
missing luggage. The porter clerk, Maximo Gomez, paged Ong
Yiu, but the latter had already left.
8. A certain Emilio Dagorro a driver of a "colorum" car, who also
used to drive for Ong Yiu, volunteered to take the luggage to
petitioner. As Maximo Gomez knew Dagorro to be the same
driver used by Ong Yiu whenever the latter was in Butuan City,
Gomez took the luggage and placed it on the counter.
9. Dagorro examined the lock, pressed it, and it opened. After calling
the attention of Maximo Gomez, the "maleta" was opened, Gomez
took a look at its contents, but did not touch them. Dagorro then
delivered the "maleta" to petitioner, with the information that the
lock was open.
10. Upon inspection, Ong Yiu found that a folder containing certain
exhibits, transcripts and private documents for Civil Case were
missing, aside from two gift items for his parents-in-law. Ong Yiu
refused to accept the luggage. Dagorro returned it to the porter
clerk, Maximo Gomez, who sealed it and forwarded the same to
PAL Cebu.
11. Meanwhile, Ong Yiu asked for postponement of the hearing of
Civil Case due to loss of his documents, which was granted by the
Court. Ong Yiu returned to Cebu City and in a letter demanded
PAL Cebu,to produce his luggage intact, and that he be
compensated in the sum of P250,000,00 for actual and moral
damages within five days from receipt of the letter, otherwise, he
would be left with no alternative but to file suit.
12.
Ong Yiu filed a Complaint against PAL for damages for breach
of contract of transportation with the Court of First Instance of
Cebu, which PAL traversed.
13. After due trial, the lower Court found PAL to have acted in bad
faith and with malice and declared petitioner entitled to moral
damages in the sum of P80,000.00, exemplary damages of
P30,000.00, attorney's fees of P5,000.00, and costs.
14. Court of Appeals, finding that PAL was guilty only of simple
negligence, reversed the judgment of the trial Court granting
petitioner moral and exemplary damages, but ordered PAL to pay
plaintiff the sum of only P100.00, the baggage liability assumed
by it under the condition of carriage printed at the back of the
ticket.
ISSUE: WON CA ​was correct in concluding that there was no gross
negligence on the part of PAL and that it had not acted fraudulently or in
bad faith as to entitle petitioner to an award of moral and exemplary
damages? -YES
RULING:
1. From the facts of the case, we agree with respondent Court that
PAL had not acted in bad faith. ​Bad faith means a breach of a
known duty through some motive of interest or ill will.
2. It was the duty of PAL to look for petitioner's luggage which had
been miscarried. PAL exerted due diligence in complying with
such duty.
3. Neither was the failure of PAL Cebu to reply to petitioner's rush
telegram indicative of bad faith. The telegram was dispatched by
petitioner at around 10PM. The PAL supervisor at Mactan Airport
was notified of it only in the morning of the following day. At that
time the luggage was already to be forwarded to Butuan City.
There was no bad faith, therefore, in the assumption made by said
supervisor that the plane carrying the bag would arrive at Butuan
earlier than a reply telegram. Had petitioner waited or caused
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4.
5.
6.
7.
someone to wait at the Bancasi airport for the arrival of the
morning flight, he would have been able to retrieve his luggage
sooner.
Petitioner is ​neither entitled to exemplary damages​. In
contracts, as provided for in ​Article 2232 of the Civil Code​,
exemplary damages can be granted if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner,
which has not been proven in this case.
The limited liability applies in this case. On the presumed
negligence of PAL, its liability for the loss however, is limited on
the stipulation written on the back of the plane
Ticket which is P100 per baggage. The petitioner not having
declared a greater value and not having called the attention of
PAL on its true value and paid the tariff therefore. The stipulation
is printed in reasonably and fairly big letters and is easily
readable. Moreso, petitioner had been a frequent passenger of
PAL from Cebu to Butuan City and back and he being a lawyer
and a businessman, must be fully aware of these conditions.
Considering, therefore, that petitioner had failed to declare a
higher value for his baggage, he cannot be permitted a recovery in
excess of P100.00. Besides, passengers are advised not to place
valuable items inside their baggage but "to avail of our V-cargo
service". It is likewise to be noted that there is nothing in the
evidence to show the actual value of the goods allegedly lost by
petitioner.
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Essential Requisites of Contracts: Consent
(Articles 1319-1346)
2.
3.
1. VELASCO v. CA (KARA)
June 29, 1973 | Castro J. | Consent
4.
PETITIONER​: Lorenzo Velasco and Socorro J. Velasco
RESPONDENTS​: Court of Appeals and Magdalena Estate, Inc.
SUMMARY​: The property in question was leased by Velasco who indicated her
desire to buy the property. Magdalena Estate also showed its willingness to sell the
property to Velasco. However, it can be said from the Velasco’s averments that
there was no agreement regarding the manner of payment. Velasco argues that the
contract of sale was perfected since there was evidence of earnest money given.
Magdalena Estate argues that the sale was never consummated and the contract of
sale if unenforceable under the Statue of Fraud since there was never an agreement
as to the manner of payment. The Court ruled in favor of Magdalena Estate. It is
obvious from the Velasco’s averments that there was no agreement or meeting of
minds as to the manner of payment. A definite agreement on the manner of
payment of the purchase price is an essential element in the formation of a binding
and enforceable contract of sale. Hence, the contract of sale is unenforeceable.
DOCTRINE: ​A definite agreement on the manner of payment of the purchase
price is an essential element in the formation of a binding and enforceable contract
of sale.
FACTS:
1. The Court of First Instance of Quezon City, rendered a decision
dismissing the complaint filed by the petitioners against the
Magdalena Estate, Inc. for the purpose of compelling specific
performance by the respondent of an alleged deed of sale of a
parcel of residential land in favor of the petitioners.
The basis for the dismissal of the complaint was that the alleged
purchase and sale agreement "was not perfected."
The parcel of land had an area of 2,059 square meters more
particularly described as Lot 15, Block 7, Psd-6129, located at No.
39 corner 6th Street and Pacific Avenue, New Manila, this City,
and was being sold for the total purchase price of P100,000.00.
Plaintiff’s story (Velasco)
a. Terms
i. Down payment of P10,000.00 to be followed by
P20,000.00 and the balance of P70,000.00 would
be paid in installments, the equal monthly
amortization of which was to be determined as
soon as the P30,000.00 down payment had been
completed.
b. Paid the down payment of P10,000.00 on November 29,
1962. When he tendered to the defendant the payment of
​
5.
the​ additional P20,000.00 to complete the P30,000.00,
defendant refused to accept and execute a formal deed of
sale.
c. Plaintiff demands 25k exemplary damages, 2k actual
damages and 7k atty’s fees.
d. Plaintiff argues that there is a perfected contract to sell
because there was earnest money given.
Defendant’s story (Magdalena Estate)
a. Denies contractual relations with plaintiff regarding the
property in question
b. Alleged contract is entirely unenforceable under the
Statute of Frauds
c. Property was leased by a certain Socorro Velasco who
indicated her desire to purchase the lot
d. Defendant indicated its willingness to sell the property to
her at the price of 100k
e. Terms
i. DP 30k, 20k of which was to be paid on
November 31, 1962
ii. Balance of 70k with interest at 9% per annum
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f.
g.
h.
i.
j.
was to be paid on installments for a period of ten
years at the rate of P5,381.32 on June 30 and
December of every year until the same shall have
been fully paid
Socorro Velasco offered to pay P10,000.00 as initial
payment instead of the agreed P20,000.00 which was
accepted merely as deposit since it was short of the agreed
20k
Socorro failed to complete DP and neither has she paid
any installments on the balance of 70k
It was only on Jan 8, 1964 when Socorro tendered
payment of 20k.
Defendant refused to accept because it considered the
offer to sell rescinded on account of her failure to
complete the down payment.
Defendant argues 1) sale was never consummated 2)
contract is unenforceable under Statute of Frauds
ISSUES:
W/N the contract of sale was perfected​ – NOPE
3.
4.
5.
the P30,000.00 was to be completed was not specified
by the parties​ but the defendant was duly compensated
during the said time prior to completion of the down
payment of P30,000.00 by way of lease rentals on the
house existing thereon which was earlier leased by
defendant to the plaintiff's sister-in-law, Socorro J.
Velasco, and which were duly paid to the defendant by
checks drawn by plaintiff."
It is not difficult to glean from the aforequoted averments that the
petitioners themselves admit that they and the respondent still had
to meet and agree on how and when the down-payment and the
installment payments were to be paid.
This Court has already ruled before that ​a definite agreement on
the manner of payment of the purchase price is an essential
element in the formation of a binding and enforceable contract
of sale.
The fact, therefore, that the petitioners delivered to the respondent
the sum of P10,000 as part of the down-payment that they had to
pay ​cannot​ be considered as sufficient proof of the perfection of
any purchase and sale agreement between the parties
RATIO:
1.
2.
The court ​a quo ​agreed with the respondent's (defendant therein)
contention that no contract of sale was perfected because the minds
of the parties did not meet "in regard to the manner of payment."
The material averments contained in the petitioners' complaint
themselves disclose a lack of complete "agreement in regard to the
manner of payment" of the lot in question. The complaint states:
a. That plaintiff and defendant further agreed that the total
down payment shall be P30,000.00, including the
P10,000.00 partial payment mentioned in paragraph 3
hereof, and that upon completion of the said down
payment of P30,000.00, the balance of P70,000.00 shall
be paid by the plaintiff to the defendant in 10 years from
November 29, 1962;
b. That the ​time within which the full down payment​ ​of
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2. Weldon v CA (Billy)
Oct. 12 1987 | J. Cortes | Cause of Contracts - Interpretation of Contracts
PETITIONER​: ​WELDON CONSTRUCTION CORPORATION
RESPONDENTS​: ​COURT OF APPEALS (Second Division) and MANUEL
CANCIO
SUMMARY​: The case arose because of the construction of the Gay Theater
building. WELDON CONSTRUCTION CORPORATION sued Manuel Cancio
in the CFI of Manila to recover P62,378.82 Pesos, (10%) of the total cost of
construction of the building, as commission, and P23,788.32 Pesos as cost of
additional works.The basis for the claim for the commission is an alleged
contract of supervision of construction between the parties, which Cancio seeks
to enforce. Cancio refused to pay on the ground that the building was
constructed by Weldon Construction for the stipulated price of P600k which was
paid in full. The issue in this case is ​WoN the agreement between the parties
is a (1) contract of supervision of construction on commission basis, in
which the case commission will be legally demandable, or (2) a construction
contract for a stipulated price which has already been consummated. This
Court finds that the agreement between the parties is the contract of
construction for a stipulated price which is akin to a contract for a piece of
work. ​Both parties having fully performed their reciprocal obligations in
accordance with said contract, Weldon Construction is estopped from
invoking an entirely different agreement to demand additional
consideration. ​The Court finds that the parties adhered to the terms and
stipulations of the Building Contract which is P600k has been fully paid while
the receipts issued by Weldon Construction contained the words, "as per
accomplishment" in consonance with the Contract which states that the Owner
shall pay the Contractor the full amount of 600k . Once a contract has been
consummated, there is nothing left to be done or to be demanded. All
obligations arising from the contract are extinguished. It is irrelevant and
immaterial to dispute the due execution of a contract, if both have performed
their obligations. There is no basis for Weldon Construction’s demand for the
payment of 10% commission of the total cost of construction. The denial of
petitioner's claim for said amount is affirmed
​ OCTRINE: Once a contract is shown to have been consummated or fully
D
performed by the parties, its existence and binding effect can no longer be
disputed.
FACTS:
1.
2.
In 1961 Lucio Lee, was doing business under the trade name
Weldon Construction, the predecessor-in-interest of WELDON
CONSTRUCTION CORPORATION which was incorporated in
July, 1963 as a closed corporation. The assets and liabilities were
assumed by the new corporation. Hence, the instant case was
brought by WELDON CONSTRUCTION CORPORATION as
successor-in-interest of Weldon Construction and Lucio Tee.
Prior to March 7, 1961, Weldon Construction drafted plans for a
theater-apartment building which respondent Cancio intended to
put up.On March 7, 1961, Lucio Lee submitted to Concio a
proposal for the supervision of the construction of said building on
commission basis.
a. The proposal was signed not by Lee but by his office
manager, Antonio Wong.
b. Among the provisions Contained in the proposal
i.
was the setting up of a revolving fund of 10k for
the costs and expenditures to be incurred in the
construction of the building, such as materials
and labor which was to be replenished by the
Concio from time to time
ii.
This also provides Weldon Construction a
commission of (10%) of the total cost of the
building
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3.
Without having signed the proposal or any written agreement on
the construction of the building, Cancio gave an advance of 10k
4. On March 28, 1961, Lee submitted another proposal for the
construction of the same building at the stipulated price of P600k
5. Two days after, ​Lee sent a prepared "Building Contract"
signed by him for Concio’s signature and of the witnesses.
Concio did not return the document to Lee, but Lee started the
construction of the building.​ When the document was presented
in court, it contained the signatures of Lee, as well as the
signatures of Manuel Cancio, and witnesses
6. As the construction of the theater building shifted to high gear,
subsequent payments were made by Cancio to Weldon
Construction ​as per accomplishment​ in the varying amounts of 25k
& 70k
7. Shortly after the completion of the theater building, Concio
completed the payment of the P 600k contract price
8. However, Weldon Construction demanded the payment of
P62,378.83 Pesos, as a commission of 10% of the total cost of
construction and of P23,788.32 Pesos as the cost of the "extra
works on the building.
9. Cancio denied the existence of any agreement on the payment of
commission and refused to pay the amounts demanded.
10. Hence, this suit initiated by the WELDON CONSTRUCTION
CORPORATION
1.
2.
ISSUES:
1.
2.
WoN the agreement between the parties is a (1) contract of
supervision of construction on commission basis, in which the
case commission will be legally demandable, or (2) a
construction contract for a stipulated price which has already
been consummated.
The ancillary issue is whether or not the petitioner can recover the
cost of additional works on the building.
RATIO:
3.
The interpretation of the true agreement between the parties, which
isan inquiry into the "law" imposed by the parties upon their
contractual relations is needed because a contract is in the nature of
"law" between the parties and their successors-in-interest
a. its interpretation necessarily involves a question of law
properly raised in this certiorari proceeding under Rule
45.
A careful scrutiny of each and every term and stipulation in the
two documents revealed two crucial difference:
a. The 1​st​ is in the proposed consideration for the
administration or supervision services.
i. In the 1​st​ Proposal submitted by Weldon
Construction for rendering services was (10%) of
the total cost of construction without a maximum
amount set on the cost.
ii. In contrast, the 2​nd​ agreement sets the stipulated
price of the construction of the building at P
600k, which is the consideration of the contract.
b. The other point of divergence is the manner the expenses
for labor and materials are provided for.
i. The 1​st​ Proposal submitted by Weldon
Construction for rendering services, sets up a
revolving fund of P10,000.00 Pesos to be paid by
the Owner and to be replenished from time to
time, for the costs of construction including
labor and materials.
ii. No such fund is provided for in the 2​nd​ Proposal
as Weldon Construction binds itself to supply the
labor and materials.
The first proposal submitted by Weldon Construction for
rendering service under a contract of supervision is simply
that, a proposal. It never attained perfection as the contract
between the parties.
a. Only an absolute or unqualified acceptance of a
definite offer manifests the consent necessary to
perfect a contract (Article 1319, Civil Code).
b. The advance payment of P10,000.00 Pesos was not an
unqualified acceptance of the offer contained in the first
proposal as in fact an entirely new proposal was
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4.
5.
6.
7.
submitted by Weldon Construction subsequently. If, as
claimed by the petitioner, the parties had already agreed
upon a contract of supervision under the 1​st​ proposal, why
then was a second proposal made? ​Res ipsa loquitur.
c. The existence of the second proposal belies the
perfection of any contract arising from the first
proposal .
With regard to the 2​nd​ proposal for the construction of the building
at 600k, the same was closely followed by the "Building Contract"
signed by Lee, setting forth the proposed terms and stipulations.
Although the WELDON Construction claims that the contract was
never returned to its predecessors-in-interest, it appears on the face
of the document that the same was signed by the contracting
parties and their witnesses. Weldon Construction does not question
the authenticity of the signature of its predecessors-in-interest,
Lucio Lee, appearing on the document who himself admitted his
signature. Weldon, however, impugns the binding effect of the
Building Contract by assailing its due execution.
Once a contract is shown to have been consummated or fully
performed by the parties, its existence and binding effect can
no longer be disputed.
a. It is irrelevant and immaterial to dispute the due execution
of a contract, if both of them have performed their
obligations with their respective signatures and those of
their witnesses appear upon the face of the document.
Even if the Building Contract was signed by Cuenco only ​after​ the
Gay Theater building had been completed and the stipulated price
of P600,000.00 was fully paid, This fact can’t negate the binding
effect of that agreement of its existence and its ​consummation​ can
be established by other evidence, e.g. by the contemporaneous acts
of the parties and their having performed their respective
obligations pursuant to the agreement.
The Court finds that the parties adhered to the terms and
stipulations of the Building Contract
a. After said contract having the signature of the contractor
Lee was submitted for the signature of Cancio,
subsequent payments were made by Cancio in amounts
ranging from P25,000.00 Pesos to P70,000.00 Pesos.
b.
8.
9.
Even if the P10k advance payment by the owner was for a
revolving fund, these relatively large amounts could
hardly be considered replenishments which could not
exceed 10k. The remittances made by the building owner
were actually partial payments of the contract price of
P600k , the amount having been based on the actual
accomplishment of the construction during the period
covered by the payment.
c. the receipts issued by Weldon Construction contained the
words, "as per accomplishment" in consonance with the
Building Contract which states that the Owner shall pay
the Contractor the full amount of 600k
d. 10% retention of every payment shall be retained by
Cuenco, to be paid upon the completion of the project
Weldon Construction assumed the obligation to construct the
building at the price fixed by the parties and to furnish both the
labor and materials required for the project. It acted as an
independent contractor within the meaning of Article 1713 of the
New Civil Code1
This Court finds that the agreement between the parties is the
contract of construction for a stipulated price which is akin to
a contract for a piece of work defined in the article.
a. Both parties having fully performed their reciprocal
obligations in accordance with said contract, Weldon
Construction is estopped from invoking an entirely
different agreement to demand additional
consideration.
b. Once a contract has been consummated, there is nothing
left to be done or to be demanded. All obligations arising
from the contract are extinguished.
c. The consideration for the construction of the Gay Theater
building is P600k which was fully paid
d. There is no basis for Weldon Construction’s demand for
the payment of P62,378.83 Pesos as 10% commission of
​By the contract for a piece of work the contractor binds himself to execute
a piece of work for the employer, in consideration of a certain price or
compensation. The contractor may either employ only his labor or skill or
also furnish the materials.
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the total cost of construction. The denial of petitioner's
claim for said amount is affirmed.
● Ancillary Issue
10. Since the contract between the parties has been established as a
contract for a piece of work for a stipulated price the right of the
contractor to recover the cost of additional works must be
governed by Article 1724 quoted as follows:2
a. In addition to the owner's authorization for any change in
the plans and specifications, Article 1724 requires that the
additional price to be paid for the contractor be reduced in
writing. Compliance with the two requisites in Article
1724, a specific provision governing additional works, is
a ​condition precedent to ​The absence of one or the other
bars the recovery of additional costs. Neither the authority
for the changes made nor the additional price to be paid
therefor may be proved by any other evidence for
purposes of recovery.
11. In the current case, the records do not show any ​written
authority​ for the changes made on the plans and specifications of
the Gay Theater building. Neither can there be found any ​written
agreement on the additional price ​to be paid for said "extra
works."
12. This is a misunderstanding between parties to a construction
agreement which the lawmakers sought to avoid in prescribing the
2 requisites under Article 1724 & this case is a perfect example of
a tedious litigation which had as a result of such misunderstanding
which the law endeavors to prevent
13. In the absence of a written authority by the owner for the changes
in the plans and specifications of the building and of a written
agreement between the parties on the additional price to be paid to
the contractor, as required by Article 1724, the claim for the cost of
additional works on the Gay Theater building must be denied.
WHEREFORE, the judgment of the Court of Appeals in its Decision of
December 23, 1971 which was upheld in its Resolution of October 18, 1972
dismissing the complaint filed by Weldon Construction Corporation is
AFFIRMED. The modification by the Court of Appeals of said Decision in
its Resolution of October 18, 1972 which dismissed the defendant's
counterclaims is likewise AFFIRMED. Petition DISMISSED for lack of
merit.
​. The contractor who undertakes to build a structure or any other work for
a stipulated price, in conformity with plans and specifications agreed upon
with the landowner can neither withdraw from the contract or demand an
increase in the price on account of the higher cost of labor or materials, save
when there has been a change in the plans and specifications, provided:
1. Such change has been authorized by the proprietor in writing; and
2. The additional price to be paid to the contractor had been determined in
writing by both parties.
2
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3. Maria Cristina Fertilizer Corp. v. CA (Jet)
June 9, 1997 | Vitug, J. | Consent - Article 1319
PETITIONER​: Maria Cristina Fertilizer Corporation (MCFC) and
Marcelo Steel Corporation (MSC), represented by Mr. Jose P. Marcelo
RESPONDENTS​: Court of Appeals (Tenth Division) and Ceferina
Argallon-Jocson assisted by her husband Mr. Marcelino Jocson
SUMMARY​:
Ceferina Argallon-Jocson filed an action for reconveyance against ​Maria
Cristina Fertilizer Corporation (MCFC) ​and Marcelo Steel
Corporation (MSC)​. A letter, addressed to Ceferina Argallon-Jocson,
from MCFC and MSC already constitutes a binding contract. The letter
states that both corporations will only accept her proposal on three
conditions: (1) That the reconveyance shall be on a case to case basis; (2)
That no reconveyance shall be effected unless approved by the Land Bank
for payment; (3) That advances not applied to a particular claim shall first
be liquidated or applied as against payment from the Land Bank, and the
corporations may start with the reconveyance of the property formerly
owned by METRACO. The trial court ruled in favor her and ordered the
MCFC and MSC to reconvey to her all the rights and interest on the
disputed land. Respondents then filed an appeal to the CA, which affirmed
in toto the trial court’s decision.
The basis of the CA decision was a letter which was supposed to be a
perfected agreement between the parties but the SC ruled otherwise. The
letter of MCFC and MSC cannot be so considered as a perfected
agreement between the parties. Whether deemed to be an offer or an
acceptance, the letter was obviously far from the requisite offer or
acceptance contemplated by Art. 1319 of the Civil Code. An offer must be
clear and definite, while an acceptance must be unconditional and
unbounded, in order that their concurrence can give rise to a perfected
contract.
DOCTRINE:
Art. 1319. 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 absolute. A
qualified acceptance constitutes a counter-offer.
FACTS:
1. Maria Cristina Fertilizer Corporation (MCFC) and Marcelo Steel
Corporation (MSC) failed to pay the balance of the purchase price
of the parcels of land and failed to reconvey the same, through Jose
Marcelo acceded to reconvey them, to Ceferina Argallon-Jocson.
2. Ceferina Argallon-Jocson, assisted by her husband Marcelino
Jocson, filed an action for reconveyance against the corporations
before the trial court.
3. MCFC and MSC contested that they have sent a letter addressed to
Mrs. Jocson, which ​acceded, through Jose Marcelo, the demand to
convey the parcel had constituted a binding contract.
4. The letter stated the following:
a. Our corporation will accept your proposal provided the
following conditions are complied with, to wit: (1) That
the reconveyance shall be on a case to case basis; (2) That
no reconveyance shall be effected unless, the value of the
claim to offset the advances for the property to be
reconveyed is accordingly approved by the Land Bank for
payment; (3) That advances not applied to a particular
claim which is outstanding in our records in the total
amount of P147,000.00 shall first be liquidated or applied
as against payment from the Land Bank.
b. Meanwhile, we may start with the reconveyance of the
property formerly owned by METRACO, and request
your goodself to coordinate with us or Frank Dionisio on
the matter. Rest assured of our esteem cooperation.
*​Signed by both corporations​.*
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5.
6.
7.
8.
9.
The trial court rendered a judgment in favor of Ceferina
Argallon-Jocson. It ordered MCFC and MSC to reconvey all the
rights and interest over the several parcels of land there involved.
In ​Deloso vs. Sandiganbayan​: It is axiomatic that contracts may be
entered into in any form orally or in writing or parol in part and
written it being needful merely that the essential requisites for their
validity be present.
In Intestate Estate of the late Ricardo P. Presbiterio, Sr. vs. CA​:
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
The instant case is just one of among other litigations between the
parties involving identical issues but covering different parcels of
land.
Another case was filed by Metraco Tele-Hygienic Services
Corporation, also represented by Jocson, against MCFC.
a. The trial court ruled in favor of Metraco by decreeing the
rescission of the questioned deed of transfer and ordering
MCFC to reconvey all the rights and interest it acquired
over the parcels of land covered by the contract.
b. MCFC appealed to the CA, which set aside the questioned
decision. The question arises: Was reconveyance the
proper remedy under the undisputed circumstances?
c. Firstly, it has been consistently held that non-payment of
the price is a resolutory condition and the remedy of the
vendor or transferor ​under Article 1191 of the Civil
Code is either to exact fulfillment or to rescind the
contract.
d. There being no other reason for coming to court but that
the appellant corporation breached the contract by failing
to pay the balance of the purchase price, appellee
Metraco's only remedy, after earlier demands for
payments were to no avail, would have been to rescind
the contract.
e.
Secondly, Metraco had, by failing to act sooner, forfeited
the right to rescind the contract. Under Article 1398, the
action to claim rescission must be commenced within
four (4) years. ​The record reveals that the Deed of
Transfer was executed by the herein parties while
appellee Metraco brought the action only some nine (9)
years later.
f. Clearly, by failing to act seasonably, Metraco lost the
right to ask for a rescission of the contract if it had wanted
to. Thus, Metraco sought to salvage the adverse effects of
its own omission by filing an action for reconveyance
instead, which prescribes in ten (10) years.
g. The fact that rescission was the proper remedy and that
the same was barred by prescription was brought to the
attention of the lower court by the appellant corporation.
Said court, however, chose to entertain the action for
reconveyance, treating the same as also an action for
rescission. Whatever cause of action Metraco had been
lost by prescription. However, the judgment allowing
rescission was made arising from an action for
reconveyance.
10. MCFC and MSC filed an appeal to the CA from the trial court's
decision, which affirmed in toto the questioned decision of the trial
court. Hence, this petition.
ISSUES:
1. WON the act of MCFC and MSC of acceding, through Jose
Marcelo, to the demand of Ceferina Argallo-Jocson to convey
the parcel after the former’s failure to the pay the balance of
the purchase price had constituted a binding contract. - NO
RATIO:
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1.
2.
3.
4.
5.
The letter of MCFC and MSC referred to in the question decision
of the appellate court cannot be so considered as a perfected
agreement between the parties.
Whether deemed to be an offer or an acceptance, the letter
obviously is far from the requisite offer or acceptance
contemplated under Article 1319 of the Civil Code.
An offer must be clear and definite, while an acceptance must be
unconditional and unbounded, in order that their concurrence can
give rise to a perfected contract.
Article 1319 provides: “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 absolute. A qualified acceptance constitutes
a counter-offer."
The various actions instituted against MCFC and MSC have been
due to their non-payment of the balance of the purchase price
owing to Argallon-Jocson. The Court shares the opinion that the
payment of the balance of the purchase price should not be delayed
any further. Justice and equity demands it.
WHEREFORE, the questioned decision of the CA is SET ASIDE and the
case is REMANDED to the trial court for determination of the balance of
the purchase price which, upon its determination, shall be paid to private
respondent. No special pronouncement on costs.
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4. Sanchez v. Rigos (Allen)
June 14, 1972 | Concepcion J. | Consent- Option to Buy
PETITIONER​: Nicolas Sanchez
RESPONDENTS​: Severina Rigos
SUMMARY​: In an instrument entitled "Option to Purchase," executed on April
3, 1961, defendant-appellant Severina Rigos "agreed, promised and committed
... to sell" to plaintiff-appellee Nicolas Sanchez for the sum of P1,510.00 within
two (2) years from said date, a parcel of land situated in the barrios of Abar and
Sibot, San Jose, Nueva Ecija. It was agreed 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. On March 12, 1963, Sanchez deposited
the sum of Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific
performance and damages against Rigos for the latter’s refusal to accept several
tenders of payment that Sanchez made to purchase the subject land.
Defendant Rigos contended that the contract between them was only “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." Plaintiff
Sanchez, on the other hand, alleged in his compliant 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. The lower court
rendered judgment in favor of Sanchez and ordered Rigos to accept the sum
Sanchez judicially consigned, and to execute in his favor the requisite deed of
conveyance. The Court of Appeals certified the case at bar to the Supreme Court
for it involves a question purely of law.
DOCTRINE ​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."
FACTS:
1. In 1961, Rigos and Sanchez executed a document titled ‘Option to
Purchase’ whereby Rigos bound herself to sell a parcel of land to
Sanchez for 1.5k pesos within two years from the execution of the
contract. This option contract had no distinct consideration.
2. Sanchez made several tenders of the purchase price to Rigos, but
Rigos ignored them. Sanchez consigned the payment in court less
than 2 months before the expiration of the period to exercise his
right.
3. In other words, Sanchez accepted the optino before Rigos could
withdraw the offer.
4. The RTC ruled in favor of Sanchez, ordering Rigos to accept the
payment of the price.
5. On appeal, Rigos claims that she could validly withdraw the option
given to Sanchez, even if Sanchez has opted to exercise his right,
since the contract was not supported by a separate and distinct
consideration (ruling in Southwestern Sugar v Altantic Gulf).
ISSUE:
Was there a contract to buy and sell between the parties or only a
unilateral promise to sell?
RULING:
The Supreme Court ​affirmed the lower court’s decision. The instrument
executed in 1961 is not a "contract to buy and sell," but merely
granted plaintiff an "option" to buy, as indicated by its own title
"Option to Purchase.".
RATIO:
1.
The option did not impose upon plaintiff Sanchez the obligation to
purchase defendant Rigos' property. Rigos "agreed, promised and
committed" herself to sell the land to Sanchez for P1,510.00, but
there is nothing in the contract to indicate that her aforementioned
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agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the
land. The lower court relied upon Article 1354 of the Civil Code
when it presumed the existence of said consideration, but the said
Article only applies to contracts in general.
2.
However, it is not Article 1354 but the Article 1479 of the same
Code which is controlling in the case at bar because the latter’s 2nd
paragraph refers to "sales" in particular, and, more specifically, to
"an accepted unilateral promise to buy or to sell." 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.
3.
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. Upon mature deliberation, the Court
reiterates the doctrine laid down in the Atkins case and deemed
abandoned or modified the view adhered to in the Southwestern
Company case.
SEPARATE OPINIONS:
CONCURRING: ANTONIO, J.,
I fully agree with the abandonment of the view previously adhered to in
Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97
Phil., 249), which holds that an option to sell can still be withdrawn, even if
accepted if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co. Inc. vs. Cua Hian Tech
(102 Phil., 948), holding that "an option implies . . . the legal obligation to
keep the offer (to sell) open for the time specified"; that it could be
withdrawn before acceptance, if there was no consideration for the option,
but once the "offer to sell" is accepted, a bilateral promise to sell and to buy
ensues, and the offeree ipso facto assumes the obligations of a purchaser.
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4. Sanchez v. Rigos (Allen)
June 14, 1972 | Concepcion J. | Consent- Option to Buy
PETITIONER​: Nicolas Sanchez
RESPONDENTS​: Severina Rigos
SUMMARY​: In an instrument entitled "Option to Purchase," executed on April
3, 1961, defendant-appellant Severina Rigos "agreed, promised and committed
... to sell" to plaintiff-appellee Nicolas Sanchez for the sum of P1,510.00 within
two (2) years from said date, a parcel of land situated in the barrios of Abar and
Sibot, San Jose, Nueva Ecija. It was agreed 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. On March 12, 1963, Sanchez deposited
the sum of Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific
performance and damages against Rigos for the latter’s refusal to accept several
tenders of payment that Sanchez made to purchase the subject land.
Defendant Rigos contended that the contract between them was only “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." Plaintiff
Sanchez, on the other hand, alleged in his compliant 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. The lower court
rendered judgment in favor of Sanchez and ordered Rigos to accept the sum
Sanchez judicially consigned, and to execute in his favor the requisite deed of
conveyance. The Court of Appeals certified the case at bar to the Supreme Court
for it involves a question purely of law.
DOCTRINE ​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."
FACTS:
1. In 1961, Rigos and Sanchez executed a document titled ‘Option to
Purchase’ whereby Rigos bound herself to sell a parcel of land to
Sanchez for 1.5k pesos within two years from the execution of the
contract. This option contract had no distinct consideration.
2. Sanchez made several tenders of the purchase price to Rigos, but
Rigos ignored them. Sanchez consigned the payment in court less
than 2 months before the expiration of the period to exercise his
right.
3. In other words, Sanchez accepted the optino before Rigos could
withdraw the offer.
4. The RTC ruled in favor of Sanchez, ordering Rigos to accept the
payment of the price.
5. On appeal, Rigos claims that she could validly withdraw the option
given to Sanchez, even if Sanchez has opted to exercise his right,
since the contract was not supported by a separate and distinct
consideration (ruling in Southwestern Sugar v Altantic Gulf).
ISSUE:
Was there a contract to buy and sell between the parties or only a
unilateral promise to sell?
RULING:
The Supreme Court ​affirmed the lower court’s decision. The instrument
executed in 1961 is not a "contract to buy and sell," but merely
granted plaintiff an "option" to buy, as indicated by its own title
"Option to Purchase.".
RATIO:
1.
The option did not impose upon plaintiff Sanchez the obligation to
purchase defendant Rigos' property. Rigos "agreed, promised and
committed" herself to sell the land to Sanchez for P1,510.00, but
there is nothing in the contract to indicate that her aforementioned
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agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the
land. The lower court relied upon Article 1354 of the Civil Code
when it presumed the existence of said consideration, but the said
Article only applies to contracts in general.
2.
However, it is not Article 1354 but the Article 1479 of the same
Code which is controlling in the case at bar because the latter’s 2nd
paragraph refers to "sales" in particular, and, more specifically, to
"an accepted unilateral promise to buy or to sell." 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.
3.
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. Upon mature deliberation, the Court
reiterates the doctrine laid down in the Atkins case and deemed
abandoned or modified the view adhered to in the Southwestern
Company case.
SEPARATE OPINIONS:
CONCURRING: ANTONIO, J.,
I fully agree with the abandonment of the view previously adhered to in
Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97
Phil., 249), which holds that an option to sell can still be withdrawn, even if
accepted if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co. Inc. vs. Cua Hian Tech
(102 Phil., 948), holding that "an option implies . . . the legal obligation to
keep the offer (to sell) open for the time specified"; that it could be
withdrawn before acceptance, if there was no consideration for the option,
but once the "offer to sell" is accepted, a bilateral promise to sell and to buy
ensues, and the offeree ipso facto assumes the obligations of a purchaser.
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5. Natino v. IAC (CAREN)
May 23, 1991 | Davide, Jr., ​J.​ | Consent
PETITIONER​: ​SPOUSES TRINIDAD AND EPIFANIO NATINO
RESPONDENTS​: ​THE INTERMEDIATE APPELLATE COURT, THE
RURAL BANK OF AGUILAR, INC. AND THE PROVINCIAL
SHERIFF EX-OFFICIO OF PANGASINAN
SUMMARY​: Petitioners Sps. Nationo executed a real estate mortgage in
favor of Respondent Rural Bank of Agular for a loan of P2,000.00. The
petitioners failed to pay said loan, and their property was foreclosed. The
respondent bank was the highest and winning bidder of the foreclosed
property, wherein the petitioner has a period of 2 years to redeem the
property. No redemption was made, so the sheriff issued a Final Deed of
Sale. Petitioners Sps. however claim that they were granted an extension
of the redemption period, but the latter denied it. RTC found that there
was an agreement between the petitioners and the respondent bank’s
president and manager, that they may pay when their means permit them
to do so, which was not void but only with a period. Such agreement was
said to be perfected by mere consent. IAC reversed this finding of the
RTC. SC agreed with IAC. ​It is obvious that this promise by the
President/Manager took place after the expiration of the redemption
period. As correctly pointed out by the respondent IAC, ​this could only
relate to the matter of resale of the property, not redemption.
DOCTRINE: ​That agreement or contract entered into between the
President and Manager of the bank was not in writing is of no moment
since under Article 1315 of the Civil Code, "contracts are perfected by
mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the
consequences which according to their nature, may be in keeping with
good faith, usage and law."
FACTS:
1. On 12 October 1970 petitioners executed a real estate mortgage in
favor of respondent bank as security for a loan of P2,000.00.
Petitioners failed to pay the loan on due date. The bank applied for
the extrajudicial foreclosure of the mortgage.
2. At the foreclosure sale on 11 December 1974 the respondent bank
was the highest and winning bidder with a bid of P2,945.11. A
certificate of sale was executed in its favor by the sheriff and the
same was registered with the Office of the Register of Deeds,
which expressly provided that the redemption period shall be two
years from the registration thereof.
3. Since no redemption was made by petitioners within the two-year
period, which expired on 29 January 1977, the sheriff issued a
Final Deed of Sale on 15 February 1977.
4. Petitioners, however, claimed that they were granted by respondent
bank an extension of the redemption period; but the latter denied it.
5. Respondent bank file a petition for a writ of possession, which
petitioners later opposed on the ground that they had consigned the
redemption money of P4,000.00
6. However, to prevent its execution, petitioners instituted with the
then Court of First Instance of Pangasinan a complaint against
respondent bank.
7. RTC found that: The plaintiffs' evidence has shown that there was
an agreement between them and the defendant bank through its
personnel and its president and manager, acting as its agents to
extend the period for redemption for the plaintiffs. However, the
plaintiffs were not given a specific time to pay and redeem but
were given by the President and Manager of the bank such time
when their ​means permit them to do so.
a. Art. 1180.
When the debtor binds himself to pay
when his means permit him to do so, the obligation shall
be deemed to be one with a period, subject to the
provisions of Article 1197.
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8.
9.
10.
11.
12.
13.
14.
That agreement or contract entered into between the President and
Manager of the bank was not in writing is of no moment since
under Article 1315 of the Civil Code, "contracts are perfected by
mere consent, and from that moment the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to
all the consequences which according to their nature, may be in
keeping with good faith, usage and law."
The defendant's claim that the agreement must be in writing based
on jurisprudence, only applies to executory contracts, not to those
either totally or partially performed, In this case, the bank had
already partially performed its obligation thereunder by extending
the period redemption from January 29, 1977 to November 14,
1979.
RTC ruled in favor of petitioners, IAC reversed the decision.
It will take better proofs than appellees' mere declaration for the
Court to believe that they had tendered the redemption money
within the redemption period which was refused by the bank.
There would have been no valid reason for a refusal; ​it is an
obligation imposed by law on every purchaser at public
auction that admits of redemption, to accept tender of
redemption money.
And should there be refusal, the correlative duty of the mortgagor
is clear: he must deposit the money with the sheriff. The evidence
does not show that appellees complied with this duty.
From the testimony of Epifanio Natino, however, it is clear that
these assurances were given before expiry of redemption. Such
assurances were not at all necessary since the right to redeem was
still in existence. Those assurances however could not and did not
extend beyond the redemption period.
It seems clear from testimony elicited on cross-examination of the
president and manager of the bank that the latter offered to ​re-sell
the property for P30,000.00 but ​after the petition for a writ of
possession had already been filed, and ​well after expiry of the
period to redeem​. Appellants failed to accept the offer; they
deposited only P4,000.00. ​There was therefore no meeting of the
minds, and accordingly, appellants (Respondent bank) may no
longer be heard.
ISSUES:
1. WON the ruling of the IAC is correct when it ruled that the
petitioners can no longer redeem the foreclosed mortgage?
RATIO:
1.
2.
SC agrees with IAC
The contrary conclusion made by the trial court is drawn from
inferences which are not supported by adequate or sufficient facts
or is based on erroneous assumptions.
3. If indeed the offer was made within the redemption period, but the
Bank refused to accept the redemption money, petitioners should
have made the tender to the sheriff who made the sale and who
then had the duty to accept the tender and execute the certificate of
redemption. ​There was no such tender to the Sheriff.
4. In respect to the alleged assurance given by Mrs. Brodeth, the
President and Manager of the Bank, sometime in May of 1978 to
the effect that petitioners can redeem the property as soon as they
have the money, it is obvious that this took place after the
expiration of the redemption period. As correctly pointed out by
the respondent IAC, ​this could only relate to the matter of resale
of the property, not redemption.
5. Even if Mrs. Brodeth is to be understood to have promised to allow
the petitioners to buy the property at any time they have the
money, the Bank was not bound by the promise not only because it
was not approved or ratified by the Board of Directors but also
because, and more decisively, it was a promise unsupported by a
consideration distinct from the re-purchase price.
6. Petition DISMISSED.
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6. SERRA v. CA (Pat)
04 Jan 1994| Nocon, J. | Consent - Consideration distinct from price (Art.
1324)
PETITIONER​: Federico Serra
RESPONDENTS​: Court of Appeals and Rizal Commercial Banking Corp.
(RCBC)
SUMMARY​:
Serra, a lot owner in Masbate, entered into a Contract of Lease w/ Option to Buy
w/ RCBC. (See fact #2 for contract stipulations). The lease period was set to 25
years and the purchase option to 10 years. After Serra was able to register the
land under the Torrens system, he pursued the bank manager to effect the sale.
RCBC informed Serra that it was willing to exercise its option, but at that point
Serra claimed that he was no longer selling.
During trial, Serra alleged that the contract was iniquitous and too
disadvantageous to him since it was a contract of adhesion and that he may
withdraw the offer since the option was not supported by any consideration other
than price. But the Supreme Court ruled against him. When Serra entered into
the contract, he was already a CPA so he would have perfectly understood the
terms of the contract he was signing. Also, he cannot withdraw the offer to
purchase from RCBC because the contract stated that if RCBC cannot purchase
in due time, the building and all improvements on the property will be Serra’s.
DOCTRINE:
Civil Code, 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 a
consideration​, as something paid or promised.
FACTS:
1. Serra (owner of a parcel of land in Quezon St., Masbate) entered
into a Contract of Lease w/ Option to Buy with RCBC. RCBC
wanted to put up a branch in Masbate.
2. CONTRACT:
a. Lease to RCBC for 25 yrs + RCBC has option to purchase
property w/in 10 years (not more than Php 210.00 / square
meter)
b. Serra has to register the land under the Torrens system
c. If land is not registered, RCBC has right to be paid by
Serra the market value of the improvements on the lot.
d. During period of lease, RCBC will pay monthly rental of
Php 700.00
e. RCBC is authorized to construct (at its own expense) a
building + other improvements. If RCBC fails to exercise
option to buy when land has already been registered, the
building and improvements shall become the property of
Serra after the 25-yr period expires, w/o right to
reimbursement.
f. Contract was subscribed before a notary public.
3. RCBC constructed a building and made improvements on the land.
Serra was able to register the land under the Torrens system. Serra
then pursued the manager of the branch to effect the sale but when
the RCBC decided to exercise its option to buy, Serra said that he
was no longer selling.
4. RCBC filed a complaint for specific performance and damages.
RCBC made it clear to Serra that they intended to stay
permanently
5. Serra argues that
a. The contract was unduly disadvantageous to him since it
was a contract of adhesion
b. The option was not supported by any consideration
distinct from the price and hence not binding upon him
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c.
6.
RCBC did not exercise the option to buy w/in a
reasonable time after registration
d. Extraordinary inflation supervened
e. Monthly rental must be adjusted
Trial court ruled in favor of Serra but reversed itself upon
reconsideration. CA affirmed the trial court ruling.
2.
ISSUES:
1. W/N the contract was unduly disadvantageous to Serra - NO
2. W/N the option given to RCBC was supported by a
consideration distinct from the price - YES
a. This question is relevant because of Art. 13243.
3. W/N the stipulate price of “not more than Php 210.00 per square
meter is certain or definite - YES
a. This question is important because of Art. 14794.
b. Not sure if this part should be recited since the Consent
provisions are only from Arts. 1319-1346. But Sir might
ask? Idk huhu
3.
RULING: ​WHEREFORE, this petition is hereby DISMISSED, and the
decision of the appellate court is hereby AFFIRMED.
RATIO:
1. The terms of the contract are NOT unfairly lopsided.
Civil Code, 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 a consideration​, as something paid or promised.
4
Civil Code, 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 promisor if the promise is supported by
a consideration distinct from the price.
3
Even if it was a contract of adhesion,5 Serra was found to
be a highly educated man (during trial, he was already a
CPA-lawyer) who was already a ​CPA ​when he entered
into the contract.
b. A man of Serra’s stature should have been more cautious
in the transactions he enters into because he is amply
equipped to drive a hard bargain if he wanted.
Apart from the price, the consideration entailed the transfer of
the building and/or improvements on the property to Serra,
should RCBC fail to exercise its option w/in the period
stipulated. This consideration is more onerous than
considerations in the precedent cited by the ponente. Since
there was such a consideration, Serra cannot withdraw his
offer.
A price is considered certain if it is so with reference to another
thing certain or whent the determination thereof is left to the
judgment of a specified person or persons.
a. Generally, gross inadequacy of price does not affect a
contract of sale
b. Evidence shows that the parties intended to peg the price
at Php 250 per square meter.
c. Serra’s subsequent acts of having the land titled +
pursuing the bank manager meant ​he understood the
terms of the contract.
a.
SEPARATE OPINIONS - ​None.
5
Contract of adhesion - a contract where a party (usually a corporation)
prepares the stipulations in the contract, while the other party merely affixes
his signature or “adhesion” thereto. These are binding as ordinary contracts.
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7. Ang Yu vs. CA (Sylina)
Dec. 2, 1994 | Vitug, J. | Consent - Right of First Refusal
PETITIONER​: Ang Yu Asuncion, Arthur Go and Keh Tiong
RESPONDENTS​: The Hon. Court of Appeals and Buen Realty
Development Corporation
SUMMARY​: A complaint for specific performance against Cu Unijeng et
al to sell the property to Ang Yu et al was filed. Amg Yu et al were
lessees of residential and commercial spaces owned by Unijeng in
Binondo. On several occasions, Unijeng informed that they are selling the
premises and are giving Ang Yu et al the priority to acquire the same.
During negotiations, Unijeng offered a price of P6M while Ang Yu made
a counter offer of P5M. Ang Yu et al wrote to the defendants to specify
the terms and conditions. As Ang Yu et al were not able to receive a
reply, they sent another letter requesting for the same. They received and
information that the said property was to be sold to another, thus filing a
complaint to compel Unijeng to sell the property to Ang Yu et al. Trial
court dismissed the complaint stating that there was no agreement to the
terms and conditions of the proposed sale, so there was no contract of sale
at all. CA affirmed while SC denied the review for certiorari by Ang Yu
et al. Unijeng executed a Deed of Sale transferring the property to Buen
Realty. Buen Realty wrote to Ang Yu et al to vacate premises.
DOCTRINE: ​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).
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.
FACTS:
1. Ang Yu et al are tenants/ lessees of residential and commercual
spaces owned by Bobby Cu Unijeng et al in Onpin St., Binondo,
Manila
2. Ang Yu et al allege that they have been occupying such spaced
since 1935 and have been paying rentals and complying with all
conditions
3. On several occasions before Oct. 9, 1986, Unijeng informed Ang
Yu et al that Unijenf are offering to sell the premises and Ang Yu
are given the priority to acquire the premises
4. During Negotiations, Unijeng offered a price of P6M while Ang
Yu et al made a counter offer of P5M
5. Ang Yu et al wrote to Unijeng asking for the specific terms and
conditions of the offer to sell
6. When Ang Yu et al did not receive any reply, another letter was
sent with the same request
7. RTC found that defendants’ offer to sell was never accepted by the
plaintiffs for the reason that the parties did not agree upon the
terms, hence there was no contract of sale at all. They further ruled
that should defendants subsequently offer their property for sale
for P11M or below, the plaintiffs will have the right of first refusal
8. CA affirmed such decision. This case was then brought to SC by
petition for review on certiorari which was denied for insufficiency
in form and substance
9. Unijeng executed a Deed of Sale transferring the land to Buen
Realty
10. Buen Realy (new owner) wrote to Ang Yu et al asking them to
vacate the property
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11. Ang Yu et al replied stating that the property subject was brought
to the notice of lis pendens. They the filed a motion for execution
12. RTC ordered that Unijeng execute the necessary Deed of Sale of
the property to Ang Yu et al for P15M in recognition of the
petitioners’ right of first refusal and thet a new TCT be issued in
favor of them.
13. The court also set aside the title issued to Buen Realty for having
been executed in bad faith. Judge issued a writ of executin
14. CA reversed
5.
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.
ISSUES:
1. WON the Contract of Sale is perfected by the grant of a Right of
First Refusal. NO
RATIO:
1.
The right of first refusal us not a perfected contract of sale under
Art. 1458 or an option under 2nd paragraph of art 1479 or an offer
under article 1319.
2. 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).
3. The obligation is upon the concurrence of the essential elements
thereof, viz:
(a) the vinculum juris or juridical tie which is the efficient cause established
by the various sources of obligations; (b) the object which is the prestation
or conduct, required to be observed; and (c) the subject-persons who,
viewed demandability of the obligation are the active (oblige) andthe
passive (obligor) subjects.
4. The perfection ​of the contract takes place upon the ​concurrence of
the essential elements thereof.
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parties, as well as the wording of the stipulation, The SC ascertained that the
parties intended the clause to be a right of first refusal (​ratio #4).
8. Equatorial v. Mayfair
November 21,1996 | Hermosisimaa, J. | Essential Requisites of Contracts:
Consent
PETITIONER​: Equatorial Realty Development Inc. & Carmelo
RESPONDENTS​: Mayfair Theatre, Inc.
SUMMARY​: Petitioner Carmelo and Respondent Mayfair entered into 2
separate Contracts of Lease, both of which contained identical provisions
stating that “If the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.​”
In accordance with the stipulation, Carmelo informed Mayfair of his
intention to sell the property. Mayfair replied, communicating his
willingness to purchase the property. ​Carmelo did not reply.
Carmelo subsequently sold the property to Petitioner Equatorial. Mayfair
filed a case for specific performance and annulment of the sale to Equatorial.
Carmelo raised as a defense that the ​option to purchase ​clause in the
contract is void since it contains no separate and distinct consideration from
the principal contract of lease.
RTC - In favor of Carmelo. The clause is an option clause (1324) which is
void since it is not supported by a separate consideration.
CA - Overturned RTC and ruled in favor of Mayfair. The clause is a Right of
First Refusal clause which needs no separate consideration
Issue: ​W/ the clause is an option to purchase clause or a right of first
refusal clause.
- Right of First Refusal
Option contracts under 1324 require a consideration which is separate and
distinct from the principal contract entered into between the parties. Since
the clause here contains no separate and distin consideration, it cannot be
considered as an option to purchase clause. Looking at the intent of the
DOCTRINE:
Option Contracts under 1324
It’s a contract granting a person the privilege to buy or not to buy certain
objects at any time within the agreed period at a fixed price. The contract of
option is a separate and distinct contract from the contract which the parties
may enter into upon the consummation of the contract. Therefore, an option
must have ​its own cause or consideration, distinct from the selling price
itself.
FACTS:
1) Carmelo (Petitioner) owned a 2-storey bldg in Recto, Manila. In 1967
and 1969, he entered into ​2 separate CONTRACTS OF LEASE with
Mayfair for the lease of 2 portions of the the bldg which the latter used as a
motion picture theater known as MAXIM and MIRAMAR THEATER.
Both lease contracts contained an identically worded paragraph 8 which
reads:
“If the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase
the same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof.”
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2.) In 1974 Carmelo informed Mayfair that they wanted to sell the entire
property, and that a certain Jose Araneta was offering to buy the whole
property for 1.2M USD. They also asked Mayfair if they wanted to buy the
property for P6-7M.
- Mayfair replied ​stating par 8 of their contract and
communicating his willingness to purchase the entire property​.
Carmelo did not reply​.
3.) ​Later in the year, Mayfair sent another letter to Carmelo purporting to
express interest in acquiring not only the leased premises but ​"the entire
building and other improvements if the price is reasonable​.” However,
both Carmelo and Equatorial questioned the authenticity of the second
letter.
4.) In 1978, Carmelo sold the property to Equatorial or P11.3M. This
prompted Mayfair to file a case for specific performance and annulment of
the sale to Equatorial.
5.) ​Carmelo alleged as special and affirmative defense (a) that it had
informed Mayfair of its desire to sell the entire property and offered the
same to Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible since the property was
not a condominium; and (b) that the ​option to purchase invoked by
Mayfair is null and void for lack of consideration
6.) ​RTC – Ruled in favor of Carmelo stating, among other things, that
paragraph 8 of the contract is an ​option clause (under Art 1324) which is
not supported by a separate consideration ​(since it did not provide for an
established consideration). Under Art 1352, Contracts without cause or with
unlawful cause, produce no effect whatever. The cause is unlawful if it is
contrary to law, morals, good custom, public order or public policy.
Therefore contracts without consideration produce no effect.
7.) ​CA – Reversed the CA saying that paragraph 8 is n​ot an option
contract/clause under 1324 but a right of first refusal‖ under 1479​,
which ​does not need a separate distinct consideration.
ISSUES:
1. W/ paragraph 8 is an option contract/right of first refusal
clause
-​ Right of first refusal
(Important to know the distinction because the former requires a
separate consideration from the principal contract while the latter
does not)
RATIO:
1. ​Article 1324 speaks of an "offer" made by an offeror which the offeree
may or may not accept within a certain period. Under this article, the offer
may be withdrawn by the offeror before the expiration of the period and
while the offeree has not yet accepted the offer. However, the ​offer cannot
be withdrawn by the offeror within the period ​if a consideration has
been promised or given by the offeree ​in exchange for the privilege of
being given that period within which to accept the offer​. The
consideration is distinct from the price which is part of the offer​. The
contract that arises is known as ​OPTION​.
(This is how the ponente discusses 1324. The discussion of Paras 2016 is
clearer:)
- It’s a contract granting a person the privilege to buy or not to buy
certain objects at any time within the agreed period at a fixed price.
The contract of option is a separate and distinct contract from the
contract which the parties may enter into upon the consummation
of the contract. Therefore, an option must have ​its own cause or
consideration,​ distinct from the selling price itself.
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2. ​Article 1479​, second paragraph, on the other hand, contemplates of an
"accepted unilateral promise to buy or to sell a determinate thing for a price
which is binding upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral promise to buy or to
sell a determinate thing for a price certain" is called an ​offer​. An "​offer​" is a
proposal to enter into a contract​.
3. ​It is evident that the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN OPTION. Although the
provision is certain as to the object (the SALE of the leased premises, which
is separate and distinct from the ORIGINAL contract of LEASE) the price
for which the object is to be sold is not stated in the provision. Otherwise
stated, the questioned stipulation is not by itself, an "option" or the "offer to
sell" ​because the clause does not specify the price for the subject
property.
4. The RTC failed to appreciate the intention of the parties in the
determination of the true meaning/purpose of the clause.
Evidently, the stipulation was intended to ​benefit and protect Mayfair in
its rights as lessee in case Carmelo should decide, during the term of the
lease, to sell the leased property. ​This intention of the parties is achieved
in two ways in accordance with the stipulation. ​The first (RIGHT OF
FIRST REFUSAL) is by giving Mayfair "30-days exclusive option to
purchase" the leased property. ​The second is​, in case Mayfair would opt not
to purchase the leased property, "that the purchaser (the new owner of the
leased property, Equatorial) shall recognize the lease and be bound by all
the terms and conditions thereof.​"
given the right to match the offered purchase price and to buy the property
at that price.
6. It is undisputed that Carmelo did recognize this right of Mayfair, for it
informed the latter of its intention to sell the said property in 1974. There
was an exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its logical
end. While it initially recognized Mayfair's right of first refusal, ​Carmelo
violated such right when, without affording its negotiations with
Mayfair the full process to ripen to at least an interface of a definite
offer and a possible corresponding acceptance within the "30-day
exclusive option" time granted Mayfair​, Carmelo abandoned
negotiations, kept a low profile for some time, and then sold, without prior
notice to Mayfair, the entire Claro M Recto property to Equatorial.
7. Since ​Equatorial is a buyer in bad faith​, this finding renders the sale to
it of the property in question rescissible​. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was aware
of the lease contracts because its lawyers had, prior to the sale, studied the
said contracts. As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.
WHEREFORE, the petition for review of the decision of the Court of
Appeals is HEREBY DENIED. ​The Deed of Absolute Sale between
petitioners Equatorial. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded​; ​Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
5. ​The stipulation (Right of First Refusal) is part and parcel of the entire
contract of lease. The consideration for the lease includes the consideration
for the right of first refusal. Thus, Mayfair is in effect stating that it consents
to lease the premises and to pay the price agreed upon provided the lessor
also consents that​, should it sell the leased property, then, Mayfair shall be
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Jet u suck. Jk love u Jet <3
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9. Bible Baptist Church v. CA (Mina)
November 26, 2014​ | Azcuna, J. | Contracts: Consent
PETITIONER​: Bible Baptist Church and Pastor Reuben Belmonte
RESPONDENTS​: Court of Appeals and Mr. & Mrs. Elmer Tito Medina
Villanueva
SUMMARY​: Bible Baptist Church (Baptist Church entered into a
contract of lease with Mr. & Mrs. Elmer Tito Medina Villanueva
(spouses Villanueva) who owns a property in Malate, Manila. Their
contract involved an agreement that Baptist Church has the option to buy
the premises from the spouses. Article 1479 provides for the de finition
and consequent rights and obligations under an option contract. For an
option contract to be valid and enforceable against the promissor, there
must be a separate and distinct consideration that supports it. After the
commencement of lease, Baptist Church paid off the loan of Spouses
Villanueva in the amount of 84k to free the premises from mortgage
encumbrance (to rescue the property) in exchange of granting them a
long term lease and an option to buy the property for P1.8 million. This
84k shall be used as the ‘separate consideration’ to support the option
contract. Baptist Church argue that they would not have agreed to
advance such a large amount as it did to rescue the property from bank
foreclosure had it not been given an enforceable option to buy that went
with the lease agreement.
The issue in this case is whether or not the option to buy given to the
Baptist Church is founded upon consideration, the Court answered no.
The 84,000 pesos were deemed to be late payments in the monthly rental
of the Baptist Church and cannot be considered as a separate
consideration. The Court compared the case to Villamor v. CA and found
two different points, one, that the money was not explicitly said to be a
separate condition when it was given and two, no document that contains
an agreement between the parties that petitioner Baptist Church's
supposed rescue of the mortgaged property was the consideration which
the parties contemplated in support of the option clause in the contract.
As previously stated, the amount advanced had been fully utilized as
rental payments over a period of one year. While the Villanuevas may
have them to thank for extending the payment at a time of need, this is
not the separate consideration contemplated by law.
DOCTRINE: ​An option contract needs to be supported by a separate
consideration. The consideration need not be monetary but could consist
of other things or undertakings. However, if the consideration is not
monetary, these must be things or undertakings of value, in view of the
onerous nature of the contract of option. Furthermore, when a
consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause.
FACTS:
1. Bible Baptist Church (BBC hehe) entered into a contract of lease
with Mr. & Mrs. Elmer Tito Medina Villanueva (spouses
Villanueva)
2. Spouses Villanueva are owners of a property located in No. 2436
(formerly 2424) Leon Guinto St. Malate, Manila.
3. The stipulations are as follows:
a. Lessor will lease it to the lessees
b. From June 7, 1985 for a period of 15 years
c. Lessee will pay the lessor within 5 days of each calendar
month, beginning 12 months from the agreement date, a
monthly rental of 10,000 pesos + 10% escalation clause
per year starting June 7, 1988
d. Upon signing, lessee shall pay 84,000 through Rural
Bank, Valenzuela, Bulacan for the purpose of redemption
of said property which is mortgaged by the lessor.
e. Title will remain with Baptist Church until the expiration
of lease agreement or the premises has been bought by the
lessee, whichever comes first. In case the title will be lost
or destroyed while in the possession of the lessee, the
lessee agrees to pay all costs involved for the re-issuance
of the title
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f.
The leased premises may be renovated by the lessee to
their satisfaction to be fit and usable as a church
g. The lessor will remove all other tenants from the premises
no later than March 15, 1986. Rental shall be 3,000 pesos
until said tenants have left
h. Lessee can buy the premises during the 15 years of lease.
Terms will be
i. Selling price of 1.8M
ii. Down payment agreed upon by parties
iii. Balance of the selling price may be paid at the
rate of 120k per year
Petitioner Baptist Church plans to buy the premises from Spouses
Villanueva, under the option given to them
Baptist Church claim that they "agreed to advance the large
amount needed for the rescue of the property but, in exchange, it
asked the Villanuevas to grant it a long term lease and an option to
buy the property for P1.8 million."
This consideration was to pay off the Villanueva’s 84k loan with
the bank, freeing them from mortgage encumbrance.
Baptist Church state further that they would not have agreed to
advance such a large amount as it did to rescue the property from
bank foreclosure had it not been given an enforceable option to
buy that went with the lease agreement
They want to purchase the property.
1.
ISSUES:
1. WON the option to buy given to the Baptist Church is founded
upon consideration — NO
2. WON by the terms of the lease agreement, a price certain for the
purchase of the land has been fixed — NO
3. WON the Baptist Church is entitled to an award for attorney’s fees
7.
4.
5.
6.
7.
8.
RATIO:
2.
3.
4.
5.
6.
The stipulation in the lease contract which gives the lessee an
option to buy is found in paragraph 8 of the contract (in the facts,
3h)
Under Art. 1479 of Civil Code, it is provided “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
promissory if the promise is supported by a consideration distinct
from the price”
The second paragraph of Article 1479 provides for the de finition
and consequent rights and obligations under an ​option contract​. For
an option contract to be valid and enforceable against the
promissor, there must be a separate and distinct consideration that
supports it.
The petitioners cannot insist that the P84,000 they paid in order to
release the Villanuevas' property from the mortgage should be
deemed the separate consideration to support the contract of option
The amount was apportioned into monthly rentals over the period
of one year, at 7,000 a month, shown by the testimony of petitioner
Pastor Belmonte where he states that the P84,000 was advance
rental equivalent to monthly rent of P7,000 for one year, such that
for the entire year from 1985 to 1986 the Baptist Church did not
pay monthly rent.
There is thus, no other separate consideration to speak of which
could support the option
Specifically, in Villamor v. Court of Appeals, half of a parcel of
land was sold to the spouses Villamor for P70 per square meter, an
amount much higher than the reasonable prevailing price.
Thereafter, a deed of option was executed whereby the sellers
undertook to sell the other half to the same spouses. It was stated in
the deed that the only reason the spouses bought the first half of
the parcel of land at a much higher price, was the undertaking of
the sellers to sell the second half of the land, also at the same price.
This Court held that the cause or consideration for the option, on
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8.
9.
the part of the spouses-buyers, was the undertaking of the sellers to
sell the other half of the property. On the part of the sellers, the
consideration supporting the option was the much higher amount at
which the buyers agreed to buy the property. It was explicit from
the deed therein that for the parties, this was the consideration for
their entering into the contract
Villamor is distinct from the present case because:
a. First, this Court cannot find that petitioner Baptist Church
parted with anything of value, aside from the amount of
P84,000 which was in fact eventually utilized as rental
payments.
b. Second, there is no document that contains an
agreement between the parties that petitioner Baptist
Church's supposed rescue of the mortgaged property
was the consideration which the parties contemplated
in support of the option clause in the contract. As
previously stated, the amount advanced had been fully
utilized as rental payments over a period of one year.
While the Villanuevas may have them to thank for
extending the payment at a time of need, this is not the
separate consideration contemplated by law.
In the present case both RTC & CA agree that the option was not
founded upon a separate and distinct consideration and that, hence,
respondents Villanuevas cannot be compelled to sell their property
to petitioner Baptist Church.
a. RTC: all payments made under the contract of lease were
for rentals. No money [was] ever exchanged for and in
consideration of the option." Hence, the Regional Trial
Court found the action of the Baptist Church to be
"premature and without basis to compel the defendant to
sell the leased premises.
b. CA: option to buy the leased premises was not binding
upon the Villanuevas for non-compliance with Article
1479. It found that said option was not supported by a
consideration as "no money was ever really exchanged for
and in consideration of the option." In the instant case,
"the price for the object is not yet certain."
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10. VILLEGAS v. CA (Tin)
18 August 2016 | Carpio, J. | Consent – Right of First Refusal
PETITIONERS​: AGRIPINO VILLEGAS, ATANACIO VILLEGAS
(deceased), substituted by his wife SOLEDAD OCAMPO VILLEGAS, ROSA
N. SANCHEZ, and CORAZON SANCHEZ
RESPONDENTS​: THE COURT OF APPEALS, VICENTE M. REYES,
JULITA R. MAYLAD, LORENZO M. REYES, LYDIA R. FELICIANO
SUMMARY​: The petitioners in this case are long-time lessees of the property
owned by the respondents located in Quiapo, Manila. The said property was
only inherited by the respondents from their father. Now, the respondent-heirs
informed the lessees that they are selling the property. The lessees were given 30
days to communicate their rights of pre-emption. Lessees replied by offering a
bid price of PhP 4M. The heirs were not satisfied of such price and requested a
higher one. Lessees did not offer a higher price, so the heirs decided to sell the
property to another buyer who offered a higher price. Despite this, the lessees
were still given an extension of 15 days to reply. The lessees sent a reply but
instead of giving a price, they asked what the heir wants. The heirs said that
someone was willing to buy the property for PhP5M and that if lessees could top
such amount, they will be the ones accommodated. The lessees, instead of
competing with the PhP5M, requested for a meeting with the heirs to negotiate
the terms of sale. During the conference, however, nothing was reached and
settled. Later, the lessees informed the heirs that they are conceding to the price
of PhP5M. However, the heirs informed the lessees that some of the owners are
now unwilling to sell the whole property, but that some of them—who in total
own 75% of the property—are willing to sell their part. Still, the lessees failed to
respond to this, so the 75% property was sold to another buyer named Lita Sy.
The lessees are challenging the sale of property to Lita Sy, alleging that the
contract of sale between Lita Sy and the heirs violated their (lessees’) right of
first refusal.
The Court said that the right of first refusal of the lessees was not violated.
Where a time is stated in an offer for its acceptance, the offer is terminated at the
expiration of the time given for its acceptance. The offer may also be terminated
when the person to whom the offer is made either rejects the offer outright or
makes a counteroffer of his own.
The latest offer of respondent-heirs was contained in their letter dated 3
November 1988 wherein only the 75% undivided interest of the property was for
sale. When the lessees opted not to respond to this offer, the heirs had the right
to sell the property to other buyers.
The lessees already exercised their right of first refusal when they refused to
respond to the latest offer of the heirs, which amounted to a rejection of the
offer. Upon the lessees' failure to respond to this latest offer of the heirs, the
latter could validly sell the property to other buyers under the same terms and
conditions offered to the lessees. Thus, when respondent-heirs sold the property
to Lita Sy, the heirs did not violate the right of first refusal of the lessees. Indeed,
the lessees were given more than ample opportunity to purchase the property.
DOCTRINE: Where a time is stated in an offer for its acceptance, the offer is
terminated at the expiration of the time given for its acceptance. The offer may
also be terminated when the person to whom the offer is made either rejects the
offer outright or makes a counteroffer of his own.
FACTS:
1. The respondents in this case are the heirs of the property located at
Evangelista Street, Quiapo, Manila. They inherited the land from their
father.
2. The petitioners are lessees of the said property since 1959. They owned
the building and improvements constructed on the property.
3. Through a letter dated 19 May 1988, an Administrative Committee of
the heirs informed the petitioner-lessees that the heirs have decided to
sell the property.
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4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
A portion of the letter reads: ​“[W]e wish to inform you that we are
selling the lot under lease with you. Accordingly, we are giving you the
opportunity to exercise your rights of pre-emption, made in writing
within thirty (30) days upon receipt of this letter. If however, we do not
hear from you after the lapse of the said period, we shall take it to
mean that you are not interested to purchase the subject lot, which
thereby give us the liberty to offer it to other interested parties.”
The lessees replied, pegging a bid price of PhP 4 million.
The Administrative Committee acknowledged the reply of the lessees,
but requested the lessees to increase their bid.
The lessees failed to respond to such request and offer a higher bid
price, so the heirs have decided to sell the property to another buyer
who offered a higher price.
a. Despite this, the Administrative Committee indicated in the
letter that they would wait for a reply within 15 days and that
should the period lapse without any reply from the lessees, it
would mean that the lessees were no longer interested in
buying the property.
So, the lessees sent a reply. Instead of offering a higher price, they
asked for the price that the Administrative Committee wants.
The Administrative Committee said that someone offered them to buy
the property for 5 million. If the lessees could offer the same, then they
would accommodate the lessees.
Instead of offering a price, the lessees requested for a meeting with all
the heirs to negotiate the sale of the property. The lessees sent their
accountant named Miranda to represent them. On the part of the heirs,
not all were able to attend.
During the conference, the parties failed to agree on the price and
terms for the sale of the property.
Later, the lessees informed the heirs that they are now willing to buy
the property for 5 million.
The heirs replied that some of the co-owners are now unwilling to sell
the property. However, other co-owners who represent 75% of the
share, are still willing to sell their part. The lessees were informed that
14.
15.
16.
17.
18.
if the heirs do not hear from them within one week, the 75% will be
sold to another buyer.
The lessees seemed to have failed to inform the heirs of their decision
because the 75% property was now sold to a certain Lita Sy.
Later, the 25% of the property was sold to the lessees (but to the heirs
of the lessees.)
The lessees filed an action against the heirs and Lita Sy for the
annulment of Deed of Sale. Lessees allege that the contract of sale
between respondent-heirs and Lita Sy should be annulled since it
violated the right of first refusal of petitioner-lessees.
Such was denied by the RTC as well as the CA.
Hence, this petition.
ISSUE:
1. WON the contract of sale between respondent-heirs and Lita Sy
violated the right of first refusal of petitioner-lessees. NO
RATIO:
1. The right of first refusal is a contractual grant, not of the sale of a
property, but of the first priority to buy the property in the event
the owner sells the same.
2. The exercise of the right of first refusal is dependent not only on
the owner's eventual intention to sell the property but also on the
final decision of the owner as regards the terms of the sale
including the price.
3. When a lease contains a right of first refusal, the lessor has the
legal duty to the lessee not to sell the leased property to anyone at
any price until after the lessor has made an offer to sell the
property to the lessee and the lessee has failed to accept it.
4. Only after the lessee has failed to exercise his right of first priority
could the lessor sell the property to other buyers under the same
terms and conditions offered to the lessee.
5. The records show that the heirs did recognize the right of first
refusal of the lessees over the property. This is clear from the letter
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dated 19 May 1988 informing the lessees that the property they
were leasing is for sale.
6. The lessees insist that there was already a perfected contract of sale
when they accepted the P5,000,000 offer for the property. This is
wrong.
7. Where a time is stated in an offer for its acceptance, the offer is
terminated at the expiration of the time given for its acceptance.
The offer may also be terminated when the person to whom the
offer is made either rejects the offer outright or makes a
counteroffer of his own.
8. The offer of PhP 5 million in the letter dated 3 August 1988
already lapsed when the lessees failed to accept it within the period
granted.
9. The latest offer of respondent-heirs was contained in their letter
dated 3 November 1988 wherein only the 75% undivided interest
of the property was for sale.
10. When the lessees opted not to respond to this offer, the heirs had
the right to sell the property to other buyers.
11. The lessees already exercised their right of first refusal when they
refused to respond to the latest offer of the heirs, which amounted
to a rejection of the offer. Upon the lessees' failure to respond to
this latest offer of the heirs, the latter could validly sell the
property to other buyers under the same terms and conditions
offered to the lessees.
12. Thus, when respondent-heirs sold the property the to Lita Sy, the
heirs did not violate the right of first refusal of the lessees. Indeed,
the lessees were given more than ample opportunity to purchase
the property.
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11. Eulogio v. Sps. Apeles (MAC)
January 20, 2009 | Chico-Nazario | Consent-WITHDRAWAL OF AN
OFFER
PETITIONER​: Enrico Eulogio
RESPONDENTS​: Spouses Clemente Apales and Luz Apales
SUMMARY​:
In 1979, the spouses Apeles leased the subject property to Arturo Eulogio
(Arturo), Enrico's father. Upon Arturo's death, his son Enrico succeeded as
lessor of the subject property. Enrico used the subject property as his residence
and place of business. Enrico was engaged in the business of buying and selling
imported cars. Eulogio and Apales allegedly entered into a Contract of Lease
with an Option to Purchase the subject property located at Timog Avenue in
Quezon City.
The contract purportedly afforded Enrico, before the expiration of the
three-year lease period, the option to purchase the subject property for a
price not exceeding P1.5 Million. Before the expiration of the three-year
lease period provided in the lease contract, Enrico exercised his option to
purchase the subject property by communicating verbally and in writing to
Luz his willingness to pay the agreed purchase price. But the spouses Apeles
supposedly ignored Enrico's manifestation.
The provision on the option to purchase the subject property incorporated in said
Contract still remains unenforceable. ​There is no dispute that what Enrico sought
to enforce in Civil Case No. Q-99- 36834 was his purported right to acquire
ownership of the subject property in the exercise of his option to purchase the
same under the Contract of Lease with Option to Purchase. He ultimately wants
to compel the spouses Apeles to already execute the Deed of Sale over the
subject property in his favor. ​An option is a contract by which the owner of the
property agrees with another person that the latter shall have the right to buy the
former's property at a fixed price within a certain time
DOCTRINE: ​Art. 1324. When the offerer has allowed the offeree 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 a
consideration, as something paid or promised.
FACTS:
1. In 1979, the spouses Apeles leased the subject property to Arturo
Eulogio (Arturo), Enrico's father. Upon Arturo's death, his son
Enrico succeeded as lessor of the subject property. Enrico used the
subject property as his residence and place of business. Enrico was
engaged in the business of buying and selling imported cars.
2. Eulogio and Apales allegedly entered into a Contract of Lease
with an Option to Purchase the subject property located at
Timog Avenue in Quezon City
3. According to the said lease contract, Luz Apeles was
authorized to enter the same as the attorney-in-fact of her
husband, Clemente, pursuant to a Special Power of Attorney
executed by the latter in favor of the former on 24 January
1979.
4. The contract purportedly afforded Enrico, before the
expiration of the three-year lease period, the option to
purchase the subject property for a price not exceeding P1.5
Million.
5. Before the expiration of the three-year lease period provided in
the lease contract, Enrico exercised his option to purchase the
subject property by communicating verbally and in writing to
Luz his willingness to pay the agreed purchase price​/
6. But the ​spouses Apeles supposedly ignored Enrico's
manifestation.
7. This prompted Enrico to seek recourse from the barangay for
the enforcement of his right to purchase the subject property,
but despite several notices, the spouses Apeles failed to appear
before the barangay for settlement proceedings.
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8.
9.
Enrico himself testified as the sole witness for his side. He narrated
that he and Luz entered into the Contract of Lease with Option to
Purchase on 26 January 1987, with Luz signing the said Contract at
Enrico's of ce in Timog Avenue, Quezon City. The Contract was
notarized on the same day as evidenced by the Certification on the
Notary Public's Report issued by the Clerk of Court of the RTC of
Manila.
On the other hand, the spouses Apeles denied that Luz signed the
Contract of Lease with Option to Purchase, and posited that Luz's
signature thereon was a forgery. To buttress their contention, the
spouses Apeles offered as evidence Luz's Philippine Passport
which showed that on 26 January 1987, the date when Luz
allegedly signed the said Contract, she was in the United States of
America.
ISSUES:
1. WON the signature was valid? NO
2. WON the option to buy by Enrico could still be enforced - NO
RATIO:
1.
2.
3.
The provision on the option to purchase the subject property
incorporated in said Contract still remains unenforceable.
There is no dispute that what Enrico sought to enforce in Civil
Case No. Q-99- 36834 was his purported right to acquire
ownership of the subject property in the exercise of his option to
purchase the same under the Contract of Lease with Option to
Purchase. He ultimately wants to compel the spouses Apeles to
already execute the Deed of Sale over the subject property in his
favor.
An option is a contract by which the owner of the property agrees
with another person that the latter shall have the right to buy the
former's property at a fixed price within a certain time.
4.
Art. 1324. When the offerer has allowed the offeree 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 a consideration, as something
paid or promised.
5. It is a condition offered or contract by which the owner stipulates
with another that the latter shall have the right to buy the property
at a fixed price within a certain time, or under, or in compliance
with certain terms and conditions; or which gives to the owner of
the property the right to sell or demand a sale.
6. 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. is simply a contract by which the owner of the property
agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time.
7. 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.
8. The doctrine requiring the payment of consideration in an option
contract enunciated in Southwestern Sugar is resonated in
subsequent cases and remains controlling to this day. Without
consideration that is separate and distinct from the purchase price,
an option contract cannot be enforced; that holds true even if the
unilateral promise is already accepted by the optionee.
9. We have painstakingly examined the Contract of Lease with
Option to Purchase, as well as the pleadings submitted by the
parties, and their testimonies in open court, for any direct evidence
or evidence aliunde to prove the existence of consideration for the
option contract, but we have found none.
10. The only consideration agreed upon by the parties in the said
Contract is the supposed purchase price for the subject property in
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the amount not exceeding P1.5 Million, which could not be
deemed to be the same
consideration for the option contract since the law and jurisprudence
explicitly dictate that for the option contract to be valid, it must be
supported by a consideration separate and distinct from the price.
SEPARATE OPINIONS: NONE
CONCURRING: NONE
12. Vazquez v. Ayala Corp. (Patrick)
November 19, 2004 | ​J.​ Tinga | Right of first refusal related to Art. 1324
PETITIONER​: DR. DANIEL VAZQUEZ and MA. LUISA M. VAZQUEZ
RESPONDENTS​: AYALA CORPORATION,
SUMMARY​: In April 23 1981, Vazquez spouses sold their shares of stock in
Conduit Development Inc which owned a 49.9 hectare property in Ayala
Alabang to Ayala Corp. The 49.9 hectare was being developed by GP
Construction. The MOA provided that The Ayala agrees to give the Vasquezs a
first option to purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase. However, after the execution
of the MOA, the development was stopped due to a claim by Lancer General
Builder Corporation addressed to Ayala as a subcontractor hired by GP
Construction. The suit was terminated only in 1987 after settling the issue with
the payment of the contractors. Days before the coming of April 23, 1984 which
is 3 years after the sale was made, the Spouses sent letters to Ayala reminding
them about the lots to be sold to the spouses. However, no demand was made
after April 23, 1981. 12. By early 1990 Ayala finished the development of the
four lots and were then offered to be sold to the Vasquez spouses at the
prevailing price in 1990. This was rejected by the Vasquez spouses who wanted
to pay at 1984 prices, thereby leading to the suit below.
The Trial Court ruled in favor of the spouses which ordered Ayala to sell the lots
at P 460 per square meter. The decision was reversed by the CA. Several issues
were raised in the petition (refer to the issue portion for all the issues). Related to
the topic, whether paragraph 5.15 of the MOA can properly be construed as an
option contract or a right of first refusal. Paragraph 5.15 is obviously a mere
right of first refusal and not an option contract. Although the paragraph has a
definite object, i.e., the sale of subject lots, the period within which they will be
offered for sale to petitioners and, necessarily, the price for which the subject
lots will be sold are not specified. The phrase at the prevailing market price at
the time of the purchase connotes that there is no definite period within which
Ayala Corporation is bound to reserve the subject lots for petitioners to exercise
their privilege to purchase. Ayala Corporation offered the price of
P6,500.00/square meter, the prevailing market price on June 18, 1990, but
Vazquez Insisting on paying for the lots at the prevailing market price in 1984 of
P460.00/square meter rejected the offer. Ayala Corporation reduced the price to
P5,000.00/square meter but again, Vazquez rejected the offer and instead made a
counter-offer in the amount of P2,000.00/square meter. Ayala Corporation
rejected the counter-offer. With this rejection, petitioners lost their right to
purchase the subject lots. Ayala Corporation did not breach Vazquez right of
first refusal and should not be compelled by an action for specific performance
to sell the subject lots at the prevailing market price in 1984.
DOCTRINE:
In a right of first refusal while the object might be made determinate, the
exercise of the right would be dependent not only on the grantors eventual
intention to enter into a binding juridical relation with another but also on
terms, including the price, that are yet to be firmed up​.
Art. 1324. When the offeror 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 a
consideration, as something paid or promised.
FACTS:
1. On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M.
Vasquez (hereafter, Vasquez spouses) entered into a Memorandum
of Agreement (MOA) with Ayala Corporation (hereafter, AYALA)
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2.
3.
4.
5.
6.
with AYALA buying from the Vazquez spouses, all of the latters
shares of stock in Conduit Development, Inc. (hereafter, Conduit).
The main asset of Conduit was a 49.9 hectare property in Ayala
Alabang, Muntinlupa, which was then being developed by Conduit
under a development plan where the land was divided into Villages
1, 2 and 3 of the Don Vicente Village. The development was then
being undertaken for Conduit by G.P. Construction and
Development Corp. (hereafter, GP Construction).
Under the MOA, Ayala was to develop the entire property, ​less
what was defined as the Retained Area consisting of 18,736
square meters. This ​Retained Area was to be retained by the
Vazquez spouses​. The area to be ​developed by Ayala was called
the Remaining Area​. ​In this Remaining Area were 4 lots
adjacent to the Retained Area and Ayala agreed to offer these
lots for sale to the Vazquez spouses at the prevailing price at
the time of purchase. The relevant provisions of the MOA (See
full text page1 for other provisions of the MOA)
5.7. The BUYER hereby commits that it will develop the
Remaining Property into a first class residential subdivision of the
same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan
within three (3) years from the date of this Agreement. ​x x x
5.15. The ​BUYER agrees to give the SELLERS a first option to
purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase.
The parties are agreed that the development plan referred to in
paragraph 5.7 is not Conduits development plan, but Ayalas
amended development plan which was still to be formulated as
of the time of the MOA. While in the Conduit plan, the 4 lots to
be offered for sale to the Vasquez Spouses were in the first phase
thereof or Village 1, in the Ayala plan which was formulated a
year later, it was in the third phase, or Phase II-c.
After the execution of the MOA, Ayala caused the suspension of
work after receiving a letter from one Maximo Del Rosario of
Lancer General Builder Corporation informing Ayala that he was
claiming the amount of P1,509,558.80 as the subcontractor of G.P.
Construction. The suit was terminated only on February 19, 1987,
when it was dismissed with prejudice after Ayala paid both Lancer
and GP Construction the total of P4,686,113.39.
7. The Vasquez spouses sent several reminder letters of the
approaching so-called deadline. However, no demand after April
23, 1984, was ever made by the Vasquez spouses for Ayala to sell
the 4 lots.
8. By early 1990 Ayala finished the development of the vicinity of
the 4 lots to be offered for sale. The four lots were then offered
to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to
pay at 1984 prices, thereby leading to the suit below.
9. After trial, the court a quo rendered its decision, ordering Ayala to
sell the lots at P 460 per square meter. (See full text for reasoning
of trial court page 4) The Court of Appeals reversed the RTC
Decision. (See page 4 to 5 for reasoning of CA)
ISSUES:
1. W/N the appellate court erred in ruling that they (Vazquez
Spouses) violated their warranties under the MOA;
2. W/N the appellate court erred in ruling that Ayala Corporation was
not obliged to develop the Remaining Property within three (3)
years from the execution of the MOA;
3. W/N the appellate court erred in ruling that Ayala was not in delay;
and
4. W/N the appellate court erred in ruling that paragraph 5.15 of
the MOA is a mere right of first refusal. (Related to the topic)
Ruling: Petition Denied
RATIO:
1. The next issue that presents itself is whether petitioners breached
their warranties under the MOA when they failed to disclose the
Lancer claim. The trial court declared they did not; the appellate
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court found otherwise. (1​st Issue Above) The Court is convinced
that petitioners did not violate the foregoing warranties.
2.
3.
Ayala Corporation came to know of the Lancer claim before the
date of Closing of the MOA. Lancers letter dated April 30, 1981
informing Ayala Corporation of its unsettled claim was received
by Ayala Corporation on May 4, 1981, well before the Closing
which occurred four (4) weeks after the date of signing of the
MOA on April 23, 1981, or on May 23, 1981.
Ayala Corporation bound itself to pay all billings payable to GP
Construction and the advances made by petitioner Daniel Vazquez.
Specifically, under paragraph 2 of the MOA referred to in
paragraph 7.1.1, The billings knowingly assumed by Ayala
Corporation necessarily include the Lancer claim for which GP
Construction is liable. Lancer sub-contract and claim were
substantially disclosed to Ayala Corporation before the Closing
date of the MOA. Ayala Corporation cannot disavow knowledge of
the claim.
4.
We now come to the correct interpretation of paragraph 5.7 of the
MOA (refer to facts above). Does this paragraph express a
commitment or a mere intent on the part of Ayala Corporation to
develop the property within three (3) years from date thereof? (2​nd
Issue)
5.
Paragraph 5.7s clear reference to the first phase of Ayala
Corporations amended development plan as the subject of the three
(3)-year intended timeframe for development.
6.
The subject lots to be sold to petitioners were in the third or last
phase of the Ayala Corporation development plan. Hence, even
assuming that paragraph 5.7 expresses a commitment on the part of
Ayala Corporation to develop the first phase of its amended
development plan within three (3) years from the execution of the
MOA, there was no parallel commitment made as to the timeframe
for the development of the third phase where the subject lots are
located.
7.
We now come to the issue of default or delay in the fulfillment of
the obligation. (3​rd​ Issue)
8.
In order that the debtor may be in default it is necessary that the
following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
judicially or extrajudicially.
9.
Under Article 1193 of the Civil Code, obligations for whose
fulfillment a day certain has been fixed shall be demandable only
when that day comes. However, no such day certain was fixed in
the MOA. Petitioners, therefore, cannot demand performance after
the three (3) year period fixed by the MOA for the development of
the first phase of the property since this is not the same period
contemplated for the development of the subject lots. Since the
MOA does not specify a period for the development of the subject
lots, petitioners should have petitioned the court to fix the period in
accordance with Article 1197 of the Civil Code. As no such action
was filed by petitioners, their complaint for specific performance
was premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to have
delayed performance of the obligation.
10. Even assuming that the MOA imposes an obligation on Ayala
Corporation to develop the subject lots within three (3) years from
date thereof, Ayala Corporation could still not be held to have been
in delay since no demand was made by petitioners for the
performance of its obligation. Petitioner’s letters which dealt with
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the three (3)-year timetable were all dated prior to April 23, 1984,
the date when the period was supposed to expire. In other words,
the letters were sent before the obligation could become legally
demandable.
11. The petition finally asks us to determine whether paragraph
5.15 of the MOA can properly be construed as an option
contract or a right of first refusal. (4​th​ Issue) – Main Issue
12. 5.15 The BUYER agrees to give the SELLERS first option to
purchase four developed lots next to the Retained Area at the
prevailing market price at the time of the purchase.
13. An option is a preparatory contract in which one party grants
to another, for a fixed period and at a determined price, the
privilege to buy or sell, or to decide whether or not to enter
into a principal contract. It binds the party who has given the
option not to enter into the principal contract with any other person
during the period designated, and within that period, to enter into
such contract with the one to whom the option was granted, if the
latter should decide to use the option. ​It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration.
14. In a right of first refusal, on the other hand, while the object might
be made determinate, the ​exercise of the right would be
dependent not only on the grantors eventual intention to enter
into a binding juridical relation with another but also on
terms, including the price, that are yet to be firmed up​.
15. Applied to the instant case, paragraph 5.15 is obviously a mere
right of first refusal and not an option contract. Although the
paragraph has a definite object, i.e., the sale of subject lots, the
period within which they will be offered for sale to petitioners and,
necessarily, the price for which the subject lots will be sold are not
specified. The phrase at the prevailing market price at the time of
the purchase connotes that there is no definite period within which
Ayala Corporation is bound to reserve the subject lots for
petitioners to exercise their privilege to purchase. Neither is there a
fixed or determinable price at which the subject lots will be offered
for sale. The price is considered certain if it may be determined
with reference to another thing certain or if the determination
thereof is left to the judgment of a specified person or persons.
16. Further, paragraph 5.15 was inserted into the MOA to give
petitioners the first crack to buy the subject lots at the price which
Ayala Corporation would be willing to accept when it offers the
subject lots for sale. ​It is not supported by an independent
consideration. ​As such it is not governed by Articles 1324 and
1479 of the Civil Code, viz:
17. Art. 1324. When the offeror 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 a consideration, as something paid or
promised.
18. Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
19. An accepted unilateral promise to buy or to 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. Consequently, the offer may be withdrawn anytime by
communicating the withdrawal to the other party.
20. In this case, Ayala Corporation offered the subject lots for sale to
petitioners at the price of P6,500.00/square meter, the prevailing
market price for the property when the offer was made on June 18,
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1990. Insisting on paying for the lots at the prevailing market price
in 1984 of P460.00/square meter, petitioners rejected the offer.
Ayala Corporation reduced the price to P5,000.00/square meter but
again, petitioners rejected the offer and instead made a
counter-offer in the amount of P2,000.00/square meter. Ayala
Corporation rejected petitioners counter-offer. With this rejection,
petitioners lost their right to purchase the subject lots.
21. Ayala Corporation did not breach petitioners right of first refusal
and should not be compelled by an action for specific performance
to sell the subject lots to petitioners at the prevailing market price
in 1984.
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13. C & C Commercial Corp. v. Menor (Enrico)
January 27, 1983| Aquino, J. | Essential Requisites of Contracts: Consent
2.
PETITIONER​: C & C Commercial Corporation
RESPONDENTS​: Antonio C. Menor & Nawasa
SUMMARY​: ​This case is about the requirement of a tax clearance certificate as
a prerequisite for taking part in public biddings or contracts to sell supplies to
any government agency. ​Judge Cloribel of the Court of First Instance of Manila
in his decision in a mandamus ​case​, ordered Antonio Menor, Acting General
Manager of the National Waterworks and Sewerage Authority (Nawasa) and the
members of the Committee on Pre-Qualification to allow C & C Commercial
Corporation (C & C) to participate as a qualified bidder in the public bidding for
the supply of asbestos cement pressure pipes to the Nawasa in spite of the fact
that it had a pending tax case and had no tax clearance certificate. Issue is ​WON
Judge Cloribel's order compelling the Nawasa officials to award the said contract
to C & C Commercial Corporation was proper. Judge Cloribel acted without
jurisdiction and with grave abuse of discretion erroneous and void. It should be
noted that "advertisements for bidders are simply invitations to make proposals,
and the advertiser is not bound to accept the highest or lowest bidder, unless the
contrary appears." No such contrary intention appears in this case.
DOCTRINE: ​Art. 1326 of CC: ​Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears.
FACTS:
1. This case is about the requirement of a tax clearance certificate as a
prerequisite for taking part in public biddings or contracts to sell
supplies to any government agency.
3.
4.
5.
6.
7.
Judge Cloribel of the Court of First Instance of Manila in his
decision in a mandamus ​case ​(Case 1)​, ordered Antonio Menor,
Acting General Manager of the National Waterworks and
Sewerage Authority (Nawasa) and the members of the Committee
on Pre-Qualification to allow C & C Commercial Corporation (C
& C) to participate as a qualified bidder in the public bidding for
the supply of asbestos cement pressure pipes to the Nawasa in spite
of the fact that it had a pending tax case and had no tax clearance
certificate.
This judgment became final because Nawasa did not appeal, and C
& C took part in the bidding, becoming the lowest bidder.
In a letter, Menor required C & C to submit the tax clearance
certificate required in Presidential Administrative Order No, 66.
The AO disqualifies any person, natural or juridical, with a
pending case before the BIR or Bureau of Customs or criminal or
civil case in court pending or finally decided against him or it
involving non-payment of any tax, duty or undertaking with the
Government, to participate in public biddings or in any contract
with the Government unless the Secretary of Finance clearance
shall certify that such cases are pending and the taxpayer submits
bond. In addition, the latest certified copy of BIR Letter of
Confirmation Form and BIR ​tax ​Form ​will also be prerequisites to
participation in any public bidding or ​execution of any contract
with them. Violation of this order shall be a ground for
administrative action.
C & C filed a motion, another petition for mandamus ​(Case 2)​,
praying that Nawasa officials be ordered to award the contract, and
they be restrained from awarding the contract to another bidder.
Judge Cloribel granted this.
From that order, the Nawasa appealed to the Supreme Court.
C & C filed in the lower court another petition for mandamus
(Case 3)​, praying that the Nawasa and Menor, be restrained from
awarding the contract to another bidder and to award the contract
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to them, which ​Judge Geronimo denied for being inimical to the
public interest
8. Nawasa awarded the contract to Regal Trading Corporation
(Regal) as the "lowest ​complying bidder.​"
9. Menor forwarded to the President of the Philippines for
examination and review the contract entered into between the
Nawasa and Regal, acting in behalf of the Sumitomo Shoji Kaisha,
Ltd., for the supply of asbestos cement pressure pipes worth
$387,814.72, which was approved.
10. Unable to get an injunction from Judge Geronimo, C & C sought
recourse in the Supreme Court, but was denied.
11. The Nawasa opposed saying that there is nothing more to be
enjoined, saying that after Judge Geronimo had denied its petition,
C & C instituted another action in the Court of First Instance at
Pasig, Rizal presided over by ​Judge Navarro (Case 4)​, who
restrained Menor and Nawasa.
ISSUES:
1. WON ​Judge Cloribel's order compelling the Nawasa officials to
award the said contract to C & C Commercial Corporation was
proper - ​NO
RATIO:
1.
2.
The issue can be argued to be moot because the contract had
already been awarded to ​Regal Trading Corporation ​in 1968 and it
can be presumed that the contract had been fully performed and
implemented. Ruling necessary, to make the appellee-corporation
stop playing around with our courts
Judge Cloribel acted without jurisdiction and with grave abuse of
discretion erroneous and void.
a. Judge Cloribel’s order was an amendment of a judgment
that had already been satisfied. The case was closed and
3.
terminated. Judge Cloribel had no right and authority to
issue such an order after he had lost jurisdiction over the
case. The award of the contract to C & C was not the lis
mota​. It was an extraneous matter that could not have
been injected into that case nor resolved therein. What
was in issue was whether C & C should be allowed to
take part in the bidding even if it had no tax clearance
certificate.
b. The Nawasa was justified because it had no tax clearance
certificate, and it had a pending tax case in the Bureau of
Internal
Revenue, in gross contravention of
Administrative Order No. 66. The trial court erred in
holding that Administrative Order No. 66 could not be
given a retroactive effect to the bid of C & C, because the
AO covers not only the bidding but also the "execution of
any contract with" the lowest bidder. In this case, at the
time the AO was issued, no award had as yet been made
and when the award was to be made, the said order was
already in force.
c. Moreover, it was not the ministerial duty of the Nawasa
officials to award the contract to C & C Commercial
Corporation even if it was the lowest bidder, The Nawasa
in its addendum No.1 to the invitation to bid dated July 6,
1966 reserved the right "to reject the bid of any bidder."
Therefore, a bidder whose bid is rejected has no cause for
complaint nor a right to dispute the award to another
bidder.
It should be noted that "advertisements for bidders are simply
invitations to make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the contrary appears"
(​Art. 1326, Civil Code​). No such contrary intention appears in this
case.
Abad Santos, J., Concurring:
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The rehabilitation of the waterworks system in Metro Manila was
considerably delayed because contractors filed baseless suits and they were
aided by judges who should have known better.
De Castro, J., Dissenting:
1.
2.
3.
In bringing the action to compel appellants to allow it to take part
in the bidding in question, appellee necessarily meant to be also
awarded the corresponding contract if its bid is found to be the
lowest within the meaning of the term "lowest bidder" under the
law and jurisprudence. The judgment, ordering appellants to allow
appellee to enter its bid would be empty and meaningless if despite
the fact that appellee is found to be the "lowest bidder", the award
of the contract is not made in its favor, without any valid reason to
reject any or all bids as is generally set forth in all invitations to
bid.
For obvious reason, appellee could not comply with the AO for it
is an admitted fact that it has pending tax cases before the Bureau
of Internal Revenue. It is precisely for this reason that appellee
went to court. When the lower court decided in favor of appellee
by declaring it to be qualified to so take part in the public bidding
in question, the judgment must take precedence over
Administrative Order No. 66 promulgated after the judgment has
become final.
The judgment has become the "law of the case," and in a true
sense, the judgment has become "property" of which it may not be
deprived without due process of law. This is exactly what the AO
would do if it is made to apply to the instant case, for while the
Court, by final judgment, qualified appellee to participate in the
bidding, the Administrative Order would disqualify said party.
This would be an illegal interference on the power of the judiciary.
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PETITIONER​: Vincente Tang
RESPONDENTS​: Court of Appeals, Philippine American Life Insurance
14. Tang v. CA (LEI)
May 25, 1975 | Abad Santos​.​ | Contract – CONSENT
SUMMARY (℅ Summary of CDAsia)​: Lee See Cuat, a 61 year old
widow and an illiterate who spoke only Chinese applied for an insurance
on her life. Because her answers indicated that she was healthy, the
respondent company issued her a policy, with petitioner as her beneficiary.
She applied for and was issued an additional issuance on her life. Her
answers in her previous application were used in appraising her
insurability for the second insurance. Five months after the second policy
was issued, she died of lung cancer.
The insurance company refused to pay on the ground that the insured
was guilty of concealment and misrepresentation. In the suit filed by
petitioner against the company, the trial court dismissed the claim
because of concealment practiced by the insured. The Court of Appeals
affirmed the decision.
In this petition for review, petitioner claims that because Lee See Guat
was illiterate and spoke only Chinese, she could not be held guilty of
concealment because the applications for insurance were in English and
the insurer had not proved that the terms thereof had been fully explained
to her, pursuant to Art. 1332 of the Civil Code.
The Supreme Court held that Article 1332 is inapplicable in the case at
bar, because the company is not seeking to enforce the contracts and
was therefore under no obligation to prove that the terms of the contract
were fully explained to the other party.
DOCTRINE: ​A​rt. 1332: When one of the parties is unable to read or if
the contract is in a language not understood by him, and mistake or fraud
is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to him.
FACTS:
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3.
1.
2.
3.
4.
5.
6.
7.
Lee Su Gat is a widow and 61 years old. She is illiterate and spoke
only Chinese. On September 25, 1965, she applied for life
insurance for 60k with Philamlife. The applications was in two
parts, both in English.
The second part dealt with her state of health. Because she
answered that she was healthy in her applications, Philam issued
her a policy effective October 23, 1965 with her nephew Vicente
Tang as beneficiary,
On November 15, 1965 Lee again applied for additional insurance
of her life for 40k. Since it was only recent from the time she first
applied, no further medical exam was made but she accomplished
Part 1 (which certified the truthfulness of statements made in Part
2).
The Policy was again approved. On April 20, 1966, Lee Su Gat
died of lung cancer.
Tang claimed the amount of 100k but Philamlife refused to pay on
the ground that the insured was guilty of concealment and
misrepresentation.
Both trial court and CA ruled that Lee was guilty of concealment.
Tang’s position, however, is that because Lee was illiterate and
spoke only Chinese, she could not be held guilty of concealment of
her health history because the application for insurance was
English and the insurer has not proven that the terms thereof had
fully explained to her as provided by Article 1332 of Civil Code.
ISSUES:
1. Whether or not Article 1332 applies? NO.
HELD:
1.
2.
4.
5.
Concurring, J. Antonio:
1.
2.
3.
4.
5.
Article 1332 is not applicable. Under said article, the obligation to
show that the terms of the contract had been fully explained to the
party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves on the party
seeking to ​enforce ​it.
In the case, the insurance company is not seeking to enforce the
contract; on the contrary it is seeking to avoid its performance.
It is petitioner who is seeking to enforce it, even as fraud or
mistake is not alleged. Accordingly, Philamlife was under no
obligation to prove that the terms of the insurance contract were
fully explained to the other party.
Even if we were to say that the insurer is the one seeking the
performance of the contracts by avoiding paying the claim, it has
to be noted as above stated that there has been no imputation of
mistake of fraud by the illiterate insured whose personality is
represented by her beneficiary.
In summary, Article 1332 is inapplicable and considering the
findings of both the trial court and the CAS as to the concealment
of Lee, the SC affirms their decisions.
In a contract of insurance, each party must communicate to the
other, in good faith, all facts within his knowledge which are
material to the contract and which the has no means of
ascertaining.
As a general rule, the failure by the insured to disclose conditions
affecting the risk of which he is aware makes the contract voidable
at the option of the insurer.
The reason for this rule is that insurance policies are traditionally
contracts uberrimae fidei which means “most abundant good faith”
“absolute and perfect candor or openness and honesty” “absence of
any concealment or deception however slight.”
Here the CA found that the insured deliberately concealed material
facts about her physical condition and history and/or concealed
with whoever assisted her in relaying false information to the
medical examiner.
Certainly, the petitioner cannot assume inconsistent positions by
attempting to enforce the contract of insurance for the purpose of
collecting the proceeds of the policy and at the same time nullify
the contract by claiming that it was executed through fraud or
mistake.
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15. De Leon v. CA (John)
June 6, 1990 | Medialdea | Essential Requisites of Contracts: Consent
PETITIONER​: Sylvia De Leon
RESPONDENTS​: Court of Appeals
SUMMARY​:
Jose and Sylvia got married and had a child. They separated and Sylvia moved
to the states. After becoming a US citizen, she got a divorce. Subsequently,
Macaria, made an agreement with Sylvia for support and partial custody of the
child. After disagreements during verbal reconsideration of the agreement,
petition was filed in the courts. Macaria claims that her consent was vitiated into
agreement with the Letter Agreement. Sylvia threatened her to bring Jose
Vicente to court for support, to scandalize their family by baseless suits and that
Sylvia would pardon Jose Vicente for possible crimes of adultery and/or
concubinage subject to the transfer of certain properties to her, is obviously not
the intimidation referred to by law. The court ruled there was no vitiated consent
as it is not the intimidation contemplated by the law.
DOCTRINE:
Article 1335: There is intimidation when one of the contracting parties is
compelled by a reasonable and well grounded fear of an imminent and
grave evil upon his person or property, or upon the person or property of
his spouse, descendants or ascendants, to give his consent. "To determine
the degree of the intimidation, the age, sex and condition of the person shall
be borne in mind. "A threat to enforce one's claim through competent
authority, if the claim is just or legal, does not vitiate consent.
1.
In order that intimidation may vitiate consent and render the
contract invalid, the following requisites must concur:
a.
(1) that the intimidation must be the determining cause of
the contract, or must have caused the consent to be given
b. (2) that the threatened act be unjust or unlawful;
c. (3) that the threat be real and serious, there being an
evident disproportion between the evil and the resistance
which all men can offer, leading to the choice of the
contract as the lesser evil
d. (4) that it produces a reasonable and well-grounded fear
from the fact that the person from whom it comes has the
necessary means or ability to inflict the threatened injury.
FACTS:
1. private respondent Jose Vicente De Leon and petitioner Sylvia
Lichauco De Leon were united in wedlock before the Municipal
Mayor of Binangonan, Rizal. On August 28, 1971, a child named
Susana L. De Leon was born from this union
2. a de facto separation between the spouses occurred due to
irreconcilable marital differences, with Sylvia leaving the conjugal
home
3. Sylvia went to the United States where she obtained American
citizenship
4. She subsequently obtained a divorce from Jose
5. Sylvia came into an agreement with Jose’s mother-in-law for
support and partial custody
6. Macaria, the mother-in-law, made cash payments to Sylvia in the
amount of P100,000 and US $35,000.00 or P280,000.00, in
compliance with her obligations
7. Jose Vicente moved for a reconsideration of the order alleging that
Sylvia made a verbal reformation of the petition as there was no
such agreement for the payment of P4,500.00 monthly support to
commence from the alleged date of separation in April, 1973 and
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that there was no notice given to him that Sylvia would attempt
verbal reformation of the agreement contained in the joint petition
8. Macaria, assisted by her husband Juan De Leon, led her complaint
in intervention.
9. She assailed the validity and legality of the Letter-Agreement
which had for its purpose, according to her, the termination of
marital relationship between Sylvia and Jose Vicente.
10. Further, Macaria alleges that she was intimidated into the Letter
Agreement and therefore her consent was vitiated
ISSUES:
1.
2.
Whether or not the Letter Agreement?
Whether or not there was vitiated consent? NO
RATIO:
2.
3.
4.
5.
6.
The use of the word "relations" is ambiguous, perforce, it is subject
to interpretation
Sylvia insists that the consideration for her execution of the
Letter-Agreement was the termination of property relations with
her husband. Indeed, Sylvia and Jose Vicente subsequently led a
joint petition for judicial approval of the dissolution of their
conjugal partnership, sanctioned by Article 191 of the Civil Code.
On the other hand, Macaria and Jose Vicente assert that the
consideration was the termination of marital relationship.
Supreme Court agrees with the trial court stating “"This Court
holds that the cause or consideration for the intervenor Macaria De
Leon in having executed Exhibits 'E' to 'E-2' was the termination of
the marital relations
the Letter-Agreement shows on its face that it was prepared by
Sylvia, and in this regard, the ambiguity in a contract is to be taken
contra proferentem, i.e., construed against the party who caused
the ambiguity and could have also avoided it by the exercise of a
little more care
7. Article 1377 of the Civil Code provides: "The interpretation of
obscure words of stipulations in a contract shall not favor the party
who caused the obscurity"
8. In order that intimidation may vitiate consent and render the
contract invalid, the following requisites must concur:
a. (1) that the intimidation must be the determining
cause of the contract, or must have caused the consent
to be given
b. (2) that the threatened act be unjust or unlawful;
c. (3) that the threat be real and serious, there being an
evident disproportion between the evil and the
resistance which all men can offer, leading to the
choice of the contract as the lesser evil
d. (4) that it produces a reasonable and well-grounded
fear from the fact that the person from whom it comes
has the necessary means or ability to inflict the
threatened injury.
9. the claim of Macaria that Sylvia threatened her to bring Jose
Vicente to court for support, to scandalize their family by
baseless suits and that Sylvia would pardon Jose Vicente for
possible crimes of adultery and/or concubinage subject to the
transfer of certain properties to her, is obviously not the
intimidation referred to by law.
10. With respect to mistake as a vice of consent, neither is
Macaria's alleged mistake in having signed the
Letter-Agreement because of her belief that Sylvia will thereby
eliminate inheritance rights from her and Jose Vicente, the
mistake referred to in Article 1331 of the Civil Code, supra. It
does not appear that the condition that Sylvia "will eliminate
her inheritance rights" principally moved Macaria to enter
into the contract. Rather, such condition was but an incident of
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the consideration thereof which, as discussed earlier, is the
termination of marital relations.
11. Article 1414 of the Civil Code, which is an exception to the pari
delicto rule, is the proper law to be applied. It provides: "When
money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a
third person. In such case, the courts may, if the public interest will
thus be subserved, allow the party repudiating the contract to
recover the money or property.
12. Since the Letter-Agreement was repudiated before the purpose has
been accomplished and to adhere to the pari delicto rule in this
case is to put a premium to the circumvention of the laws, positive
relief should be granted to Macaria
ACCORDINGLY, the petition is hereby DENIED. The decision of the
respondent Court of Appeals dated June 30, 1987 and its resolution
dated November 24, 1987 are AFFIRMED. SO ORDERED
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16.​ ​Abando v. Lozada (Anyssa)
October 13,1989 | Gankayco, J. | Consent
PETITIONER: ​Igmidio Abando and Consolacion Abando
RESPONDENTS:​ Francisco Lozada, Milagros Lozada and CA
2.
3.
SUMMARY:
Pucan and Cuevas fraudulently acquired three parcels of land from sps. Abando
through a false lease contract. After having realized Pucan’s fraudulent act and that 4.
the former had mortgaged and subsequently lost two of which to Sps. Lozada, a
petition for nullification of mortgaged contract was file before the CFI.
5.
Issue: Can the contract be nullified?
Held: No. The mortgage contract between Pucan and sps Lozada is valid. Sps.
Abando may not recover their properties.
DOCTRINE:
​Offers to invest their property in Prime Exhange Co. was made to the
spouses by a certain Ernesto Pucan who was the President of the said
company and Cuevas. The same was turned down repeatedly.
​Pucan then offered to lease the properties instead and promised the
spouses that Prime Exchange would construct a 5 storey bldg. on the
land that the spouses would administer, be given a dwelling in said
bldg, paid annual income of P20k, and that their son would be given a
job. The spouses then agreed.
​The promise by Puncan and Cuevas was false and through fraudulent
acts, they were able to keep all the copies of the false lease contract
signed by the spouses and all the TCTs.
​Upon finding out that the Lease Contract that they signed were actually
Joint Venture Agreements and Deed of Assignments in favor of Prime
Exchange, and after having located Pucan whose office moved from
Makati to Espana, they went to the office of the Register of Deed of
Pasig where they found out that their TCTs were under the name of
Prime Exchange.
​They also found that 2 of their properties were sold to Pucan who lost
the same in an auction after having mortgaged the same to the
respondents, spouses Lozada.
​A petition was then filed before the CFI praying for, among others, the
nullification of the subsequent mortgage contract between Pucan and
private respondents herein.
When fraud is employed to obtain the consent of the other party to enter into a 6.
contract, the resulting contract is merely a voidable contract, that is, a valid and
subsisting contract until annulled or set aside by a competent court.
7.
Good faith refers to a state of the mind which is manifested by the acts of the
individual concerned. It consists of the honest intention to abstain from taking an
unconscionable and unscrupulous advantage of another. It is the opposite of fraud,
and its absence should be established by convincing evidence. On the other hand,
bad faith does not simply connote bad judgment or negligence; it imports a ISSUES:
dishonest purpose or some moral obliquity and conscious doing of wrong. It
WON the mortgaged contract may be nullified due to Pucan’s
partakes of the nature of fraud.
fraudulent act? – No :(
FACTS:
1. ​Spouses Abando owns 3 parcels of land located at Madaluyong. Each lot
is covered by Transfer Certificate Titles (TCT) in their name.
RATIO:
1. ​The acts employed by Cuevas and Pucan are facts constitutive of fraud
which is defined in Article 1338 of the Civil Code as that insidious
words or machinations of one of the contracting parties, by which the
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2.
3.
4.
5.
6.
7.
other is induced to enter into a contract which, without them, he would
not have agreed to.
​When fraud is employed to obtain the consent of the other party to
enter into a contract, the resulting contract is merely a voidable
contract, that is, a valid and subsisting contract until annulled or
set aside by a competent court. Thus, contrary to the assertion of sps.
Abando the joint venture agreement and the deed of assignment which
they unknowingly signed are not void contracts.
​Sps Abando shows that at the particular day the mortgage was executed
between Ernesto Pucan and the Lozadas, TCTs under the name of
Pucan were not yet in existence. In fact, they added, these titles were
issued only in the name of Pucan, the mortgagor, a day after the
mortgage contract was perfected. They said that had sps. Lozada made
an inquiry as to who was in possession of the property they would have
found the that it was they who were in possession thereof.
​While concededly there is a point in petitioners' argument that "[a]
mortgagee in bad faith cannot shed his bad faith color by the mere
expedient of an auction sale of the same property where he himself is
the highest bidder," there is no substantial reason to reverse CA
decision.
​Good faith refers to a state of the mind which is manifested by the
acts of the individual concerned. It consists of the honest intention
to abstain from taking an unconscionable and unscrupulous
advantage of another. It is the opposite of fraud, and its absence
should be established by convincing evidence.
​On the other hand, bad faith does not simply connote bad judgment
or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It partakes of the nature of
fraud.
​While it is true that at the time the real estate mortgage was executed,
title was not yet registered in the name of the Pucan, however, the
evidence on record does not disclose that sps. Lozada were privy of the
fraud and deceit used by Pucan.
8. ​Standing alone, the fact that the private respondents did not investigate
the title to the properties offered as collaterals does not constitute
convincing evidence to rebut the presumption that they are, in good
faith. Under the rules on evidence, a presumption exists that private
transactions have been fair and regular.
9.
​Sps. Lozada had no prior knowledge petitioners were in actual
possession of the property. They had no duty to inspect the property
before granting the loan. They did not have to inquire beyond the titles
of the property. And no doubt in this case the clean transfer certificates
of title were issued in the name of the mortgagors.
10. ​In fact there is evidence to bolster Lozadas' claim of innocence and
good faith. Prior to the foreclosure proceeding, Francisco Lozada not
only relied on the two certificates of title that were exhibited to him, he
even went out of his way and verified from the records of the Register
of Deeds if the properties were really in the name of Pucan.
11.​ ​In Blondeau and De la Cantera vs. Nano and Vallejo:
“as between two innocent persons, the mortgagee and the real owner of the
mortgage property one of whom must suffer the consequence of fraud, the
one who made it possible by his act of confidence must bear the loss. “
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17. Samson v. CA (Bryan)
November 25, 1994 | Puno, J. | Essential Requisites of Contracts – Consent
(Conditional contract which relies on expectancy)
PETITIONER​: Manolo P. Samson
RESPONDENTS​: Court of Appeals, Santos & Sons, Inc., and Angel Santos
SUMMARY​:
A commercial unit at the Madrigal Building located in Manila is owned by
Susana Realty Corporation (SRC). The subject premises was leased to private
respondent Angel Santos. The respondent’s store, Santos & Sons, Inc., occupied
the premises for almost 20 years on a yearly basis. In 1983, the lease contract in
force provided that the term of the lease shall be 1 year, starting August 1, 1983
until July 31, 1984. SRC then informed the respondent Santos that the contract
would not be renewed upon expiration. Nevertheless, the lease contract was
extended until the end of December 1984. Subsequently, respondent Santos
continued to occupy the leased premises beyond the extended term. In February
5, 1985, respondent Santos received a letter from lessor SRC, informing him of a
rental increase, retroactive to January 1985, ​pending renewal of the contract
until the arrival of Ms. Madrigal (one of the owners). Petitioner Manalo
Samson offered to buy the store of Santos & Sons, and the right to lease the
subject premises. Thereafter, petitioner Samson and respondent Santos entered
into a contract, pegging a value of Php 300,000 for the sale of the store and the
leasehold right. Petitioner Samson paid Php 150,000 to respondent Santos
representing the value of existing improvements in the Santos & Sons store. The
parties agreed that the balance of the Php 150,000 (the other half) shall be paid
upon the formal renewal of the lease contract. In March 1985, petitioner Samson
started to occupy the store. However, in July 1985, SRC directed the petitioner
Samson to vacate the premises. Respondent Santos failed to renew his lease over
the premises and the petitioner was forced to vacate the area. Then, petitioner
Samson filed an action for damages against private respondent Santos, imputing
fraud and bad faith against the latter. The trial court ruled in favor of petitioner
Samson. The Court of Appeals (CA) held that respondent Santos did not
exercise fraud or bad faith in its dealings with petitioner. The Supreme Court
(SC) affirmed the decision of the CA.
DOCTRINE: ​In civil law, a conditional contract is one wherein the efficacy of
which depends upon an expectancy (the object thereof relates to a future right).
Causal fraud or bad faith on the part of one of the contracting parties which
allegedly induced the other to enter into a contract must be proved by clear and
convincing evidence.
FACTS:
1. The subject matter of this case is a commercial unit at the Madrigal
Building, located at Claro M. Recto Avenue, Sta. Cruz, Manila.
The building is owned by Susana Realty Corporation and the
subject premises was leased to private respondent Angel Santos.
The lessee's haberdashery store, Santos & Sons, Inc., occupied the
premises for almost twenty (20) years on a yearly basis. ​The lease
contract in force between the parties in the year 1983 provided that
the term of the lease shall be one (1) year, starting on August 1,
1983 until July 31, 1984.
2.
On June 28, 1984, the lessor Susana Realty Corporation, through
its representative Mr. Jes Gal R. Sarmiento, Jr., informed
respondents that the lease contract which was to expire on July 31,
1984 would not be renewed.
3.
On June 28, 1984, the lessor Susana Realty Corporation, through
its representative Mr. Jes Gal R. Sarmiento, Jr., informed
respondents that the lease contract which was to expire on July 31,
1984 would not be renewed. Nonetheless, private respondent's
lease contract was extended until December 31, 1984. Private
respondent also continued to occupy the leased premises beyond
the extended term.
4.
On February 5, 1985, private respondent received a letter ​from the
lessor, through its Real Estate Accountant Jane F. Bartolome,
informing him of the increase in rentals, retroactive to January
1985, pending renewal of his contract until the arrival of Ms. Ma.
Rosa Madrigal (one of the owners of Susana Realty).
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5.
6.
On February 9, 1985, petitioner Manolo Samson saw private
respondent in the latter's house and offered to buy the store of
Santos & Sons and his
right to lease the subject premises.​ ​Petitioner was advised to return
after a week. Upon entering into a contact, they agreed that the
consideration for the sale of the store and leasehold right of Santos
& Sons, Inc. shall be P300,000.00.
On February 20, 1985, petitioner paid P150,000.00 to private
respondent representing the value of existing improvements in the
Santos & Sons store. The parties agreed that the balance of
P150,000.00 shall be paid upon the formal renewal of the lease
contract between private respondent and Susana Realty. It was also
a condition precedent to the transfer of the leasehold right of
private respondent to petitioner.
7.
In March 1985, petitioner began to occupy the Santos & Sons
store. He utilized the store for the sale of his own goods. In July
1985, however, petitioner received a notice from Susana Realty,
addressed to Santos & Sons, Inc., directing the latter to vacate the
leased premises on or before July 15, 1985. Private respondent
failed to renew his lease over the premises and petitioner was
forced to vacate the same on July 16, 1985.
8.
Petitioner then filed an action for damages against private
respondent. He imputed fraud and bad faith against private
respondent when the latter stated in his letter-proposal that his
lease contract with Susana Realty has been impliedly renewed.
Petitioner claimed that this misrepresentation induced him to
purchase the store of Santos & Sons and the leasehold right of
private respondent. Respondent alleged that their agreement was to
the effect that the consideration for the sale was P300,000.00,
broken down as follows: P150,000.00 shall be for the
improvements in the store, and the balance of P150,000.00 shall be
for the sale of the leasehold right of Santos & Sons over the subject
premises. The balance shall be paid only after the formal renewal
of the lease contract and its actual transfer to petitioner.
9.
The trial court ruled in favor of petitioner Samson. The CA held
that respondent Santos did not exercise fraud or bad faith in its
dealings with petitioner.
ISSUE:
Whether or not private respondent Angel Santos committed fraud or bad
faith in representing to petitioner that his contract of lease over the subject
premises has been impliedly renewed by Susana Realty. ​NO
RATIO:
1. The Court sustained the finding of public respondent CA that
private respondent was neither guilty of fraud nor bad faith in
claiming that there was implied renewal of his contract of lease
with Susana Realty. The records will bear that the original
contract of lease between the lessor Susana Realty and the lessee
private respondent was for a period of one year, commencing on
August 1, 1983 until July 31, 1984. Subsequently, however, private
respondent's lease was extended until December 31, 1984. At this
point, it was clear that the lessor had no intention to renew the
lease contract of private respondent for another year. However, on
February 5, 1985, the lessor, thru its Real Estate Accountant, sent
petitioner a letter ​of even date, informing him of a rental increase,
retroactive to January 1985, ​pending renewal of the contract until
the arrival of Ms. Tanya Madrigal (one of the owners). Clearly,
this letter led private respondent to believe and conclude that
his lease contract was impliedly renewed and that formal
renewal thereof would be made upon the arrival of Ms.
Madrigal. Thus, ​from the start, it was known to both parties
that, insofar as the agreement regarding the transfer of private
respondent's leasehold right to petitioner was concerned, the
object thereof relates to a future right. ​It is a conditional
contract recognized in civil law, ​the efficacy of which depends
upon an expectancy — the formal renewal of the lease contract
between private respondent and Susana Realty.
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2.
Bad faith is essentially a state of mind affirmatively operating with
furtive design or with some motive of ill-will. ​It does not simply
connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious doing of wrong.
Bad faith is thus synonymous with fraud and involves a design to
mislead or deceive another, not prompted by an honest mistake as
to one's rights or duties, but by some interested or sinister motive.
In contracts, the kind of fraud that will vitiate consent is one
where, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. This is known
as dolo causante or causal fraud which is basically a deception
employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other.
3.
The records would also reveal that private respondent's lawyer
informed him that ​he could sell the improvements within the store
for he already owned them but the sale ​of his leasehold right over
the store could not as yet be made for his lease contract had ​not
been actually renewed by Susana Realty. Indeed, it was precisely
pursuant to this ​advice that private respondent and petitioner
agreed that the improvements in the ​store shall be sold to petitioner
for P150,000.00 while the leasehold right shall be ​sold for the
same amount of P150,000.00, payable only upon the formal
renewal of the ​lease contract and the actual transfer of the
leasehold right to petitioner. ​The efficacy of the contract between
the parties was thus made dependent upon the happening of
this suspensive condition.
4.
Moreover, public respondent Court of Appeals was correct when it
faulted petitioner for failing to exercise sufficient diligence in
verifying first the status of private respondent's lease.
5.
Petitioner had every opportunity to verify the status of the lease
contract of private respondent with Susana Realty. As held by the
Court in the case of ​Caram, Jr. v. Laureta​, ​the rule ​caveat emptor
requires the purchaser to be aware of the supposed title of the
vendor and he who buys without checking the vendor's title takes
all the risks and losses consequent to such failure. In this case, the
means of verifying for himself the status of private respondent's
lease contract with Susana Realty was open to petitioner.
Nonetheless, no effort was exerted by petitioner to confirm the
status of the subject lease right. He cannot now claim that he has
been deceived.
Dispositive Portion: ​IN VIEW WHEREOF, the appealed decision is hereby
AFFIRMED ​in toto​. Costs against petitioner.
Narvasa, C.J. Chairman, Regalado and Mendoza, JJ., concur.
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18. Umali v. CA (VHONE)
Sept. 13, 1990 | Regalado | Requisites of Contracts: Consent - Absolute
Simulation
PETITIONER​: Buenaflor Umali etc.
RESPONDENTS​: CA, Bormaheco, PM Parts Manufacturing
SUMMARY​: Castillo family owns a parcel of land located in Lucena
City. In a series of transactions, the parcels of land transferred ownership
from the Castillo family to Rivera to ICP to PM Parts. PM Parts sent a
letter to Castillo and her children to vacate the property. Castillo refused.
Heirs of Castillo, Umali (new administratrix), filed an action for
annulment of title. They contended that all transactions are void for being
entered into fraud and without consent and approval of the Court of First
Instance. They pray that the parcels of land be declared as owned by the
estate of the late Felipe Castillo.
SC ruled that evidence on record reveals that petitioners had every
intention to be bound by their undertakings in the various transactions had
with private respondents. The occurrence of these series of transactions
between petitioners and private respondents is a strong indication that the
parties actually intended, or at least expected, to exact fulfillment of their
respective obligations from one another.
DOCTRINE:
There is ​absolute simulation​, which renders the contract null and void,
when the parties do not intend to be bound at all by the same.
FACTS:
1. The Castillo family owns a parcel of land located in Lucena City.
The land was used as a security loan from the Development Banks
of the Philippines.
2. Foreclosure was about to be initiated due to failure to pay the
amortization.
3. In order to raise the necessary funds, Santiago Rivera proposed to
the Castillo family a conversion into subdivision of the four parcels
of land adjacent to the mortgaged property.
4. The Castillo family accepted, so a Memorandum of Agreement
was excecuted:
a. Santiago Rivera to pay 70,000 immediately after the
execution of the agreement
b. And an additional 400,000 after conversion into a
subdivision
5. Rivera approached Modesto Cervantes, president of respondent
Bormaheco, and proposed to purchase 2 tractors, while armed with
the Memorandum. Both esecuted a Sales Agreement over one unit
of the tractor.
a. 230,000 was the full price
b. 50,000 downpayment
c. 180,000 payable in 18 months
6. Slobec executed a Chattel Mortgage in favor of Bormaheco as
security. As further security, Slobec obtained a surety bond with
Insurance Corporation of the Phil. (ICP).
*Rivera is president of Slobec
7. Surety bond was secured by an Agreement of Counter-Guaranty
with Real Estate Mortgage.
a. Rivera as president of Slobec
b. Castillos as morgagors
c. ICP as mortgagee
8. ICP guaranteed the obligation of Slobec with Bormaheco. ICP
required the Castillos to mortgage to them the 4 parcels of land.
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9.
ICP sold to Phil. Machinery Parts Manufacturing (PM Parts) the
parcels of land.
10. PM Parts sent a letter to Castillo and her children to vacate the
property. Castillo refused through a reply letter.
11. Heirs of Castillo, Umali (new administratrix), filed an action for
annulment of title. ​They contended that all transactions are void
for being entered into fraud and without consent and approval
of the Court of First Instance. They pray that the parcels of
land be declared as owned by the estate of the late Felipe
Castillo.
ISSUES:
1. WON the transactions entered are all fraudulent and
simulated - NO
RATIO:
1.
2.
3.
Petitioners aver that the transactions are all fraudulent, thus null
and void. This is premised by:
a. Rivera never made any advancement payment
b. Tractor was received only on Jan. 23, 1971, and not in
1970.
c. Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage was executed on October 24,1970, to secure the
obligation of ICP under its surety bond, the Sales
Agreement and Chattel Mortgage had not as yet been
executed, aside from the fact that it was Bormaheco, and
not Rivera, which paid the premium for the surety bond
issued by ICP.
Petitioners contention hinges on questions of fact, thus the Court
cannot rule on it unless there is convincing proof.
Evidence on record reveals that petitioners had every intention to
be bound by their undertakings in the various transactions had with
private respondents.
There is ​absolute simulation​, which renders the contract null and
void, when the parties do not intend to be bound at all by the same.
5. The occurrence of these series of transactions between petitioners
and private respondents is a strong indication that the parties
actually intended, or at least expected, to exact fulfillment of their
respective obligations from one another.
6. Petitioners themselves admit in their present petition that Rivera
executed a Deed of Sale with Right of Repurchase of his car in
favor of Bormaheco and agreed that a part of the proceeds thereof
shall be used to pay the premium for the bond. 11 In effect,
Bormaheco accepted the payment of the premium as an agent of
ICP. The execution of the deed of sale with a right of repurchase in
favor of Bormaheco under such circumstances suf ciently
establishes the fact that Rivera recognized Bormaheco as an agent
of ICP. Such payment to the agent of ICP is, therefore, binding on
Rivera. He is now estopped from questioning the validity of the
suretyship contract.
SEPARATE OPINIONS:
CONCURRING:
4.
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PETITIONER:​ Sps. Isabelo and Erlinda Payongayong
RESPONDENTS: ​CA, Sps. Clemente and Rosalia Salvador
SUMMARY​: Eduardo Mendoza mortgaged a land to MESALA for a loan
of P81,700. Afterwards, he sold the property to the Payongayong spouses.
Mendoza secured a second loan with the same property and sold it this time
to the Salvador spouses. The petitioners are assailing that the Salvadors
acted in bad faith and it was maliciously sold thus asking for annulment of
the sale to the Salvadors.
19. Payongayong v. CA (V)
May 28, 2004 | Carpio Morales, ​J.​ | Consent - Simulation
The court ruled that the Salvadors were purchasers in good faith and that it
is enough to rely on the annotated certificate title. They also checked in the
Register of Deeds if the owner of the property is Mendoza and therefore, the
purchase is valid since they were buyers in good faith.
DOCTRINE:
Simulation is when an apparent contract is a declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for the
purpose of deception, the appearance of a juridical act which does not exist
or is different from that which was really executed
Requisites:
a) an outward declaration of will different from the will of the parties;
b) the false appearance must have been intended by agreement
c) the purpose is to deceive third persons
Facts:
1. Eduardo Mendoza (Mendoza) was the registered owner of a two
hundred square meter parcel of land situated in Barrio San
Bartolome, Caloocan and mortgaged it to the Meralco Employees
Savings and Loan Association (MESALA) to secure a loan of
P81,700.00.
2. Mendoza sold the property with assumption of mortgage and all
the improvements to the Payongayong sps. For P50,000. It is stated
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3.
4.
5.
6.
7.
in the deed that petitioners bound themselves to assume payment
of the balance of the mortgage indebtedness of Mendoza to
MESALA.
On December 7, 1987, Mendoza, without the knowledge of
petitioners, mortgaged the same property to MESALA to secure a
loan in the amount of P758,000.00 and was duly annotated in the
title.
Mendoza sold the same property in 1991 to the Salvador spouses
for P50,000. ​The Salvadors caused the cancellation of Mendoza's
title and the issuance of Transfer Certificate Title No. 67432 113 3
in their name.
The Payongayong spouses found out and filed a complaint for
annulment of deed of absolute sale and transfer certificate of title
with recovery of possession and damages against Mendoza, his
wife Sally Mendoza, the Salvador Sps.
The Salvadors alleged that the spouses Mendoza maliciously sold
to respondents the property which was priorly sold to them and
that respondents acted in bad faith in acquiring it, having had
knowledge of the existence of the Deed of Absolute Sale with
Assumption of Mortgage between them (petitioners) and Mendoza.
The trial court ruled that the bank had the authority to increase the
interest rate pursuant to the provisions mentioned above.
Issue: Whether the Salvadors are considered as buyers in good faith and the
sale is valid.
Whether the contract is a simulation.
Ratio:​ Yes, they are and the sale is valid.
It is a well-established principle that a person dealing with registered land
may safely rely on the correctness of the certificate of title issued and the
law will in no way oblige him to go behind the certificate to determine the
condition of the property. He is charged with notice only of such burdens
and claims as are annotated on the title. He is considered in law as an
innocent purchaser for value or one who buys the property of another
without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim of another person.
In respondents’ case, they did not only rely upon Mendoza's title. Rosalia
personally inspected the property and verified with the Registry of Deeds of
Quezon City if Mendoza was indeed the registered owner. Given this
factual backdrop, respondents did indeed purchase the property in good
faith and accordingly acquired valid and indefeasible title thereto.
Art. 1544 Civil Code: …Should it be immovable property, the ownership
shall belong to the person acquiring it who in good faith first recorded it in
the Registry of Property. Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the possession; and, in
the absence thereof, to the person who presents the oldest title, provided
there is good faith.
There being double sale of an immovable property, as the above-quoted
provision instructs, ownership shall be transferred (1) to the person
acquiring it who in good faith first recorded it in the Registry of Property;
(2) in default thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who presents the oldest
title, provided there is good faith.
No, it was not a simulation.
Simulation - occurs when an apparent contract is a declaration of a fictitious
will, deliberately made by agreement of the parties, in order to produce, for
the purpose of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed
Requisites:
a) an outward declaration of will different from the will of the parties;
b) the false appearance must have been intended by agreement
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c) the purpose is to deceive third persons
The cancellation of Mendoza's certificate of title over the property and the
procurement of one in its stead in the name of respondents, which acts were
directed towards the fulfillment of the purpose of the contract, unmistakably
show the parties’ intention to give effect to their agreement.
Petitioners’ (Payongayong) failure to register the sale in their favor made it
possible for the Mendozas to sell the same property to respondents.
Therefore, the Salvadors are purchasers in good faith and are the new
owners of the property.
Addtl info on the case: Procedural - There was no written explanation why
the service or filing was not done personally.
20.) Heirs of Ureta vs. Heirs of Ureta (Jestine)
Sept. 14, 2011| Mendoza, J. | Cause of Contracts- Motives
(Note: This was two consolidated cases)
PETITIONER​: Heirs of Policronio Ureta
RESPONDENTS​: Heirs of Liberato Ureta
SUMMARY​:
Alfonso Ureta had multiple children, including Policronio and Liberato. In order
to avoid payment of inheritance tax, Alfonso, while alive, made it appear that he
sold parcels of land to his children. Pursuant to this, a deed of sale for 6 parcels
of land was executed between Policronio and Alfonso. However, no
consideration was given.
After Alfonso and Policronio died (not sabay), the heirs of Alfonso executed a
deed of extrajudicial settlement of estate. Included in the partition was the six
parcels of land. Conrado, the eldest son of Policronio, signed on behalf of his
siblings
Heirs of Policronio alleges that 1.) the deed of sale was valid therefore the 6
parcels of land should not have been included in the partition and 2.) that
Conrado did not have the authority to sign on behalf of his siblings, thus the
extrajudicial settlement is void. RTC dismissed but CA Partially Granted
DOCTRINE:
Alfonso simulated a transfer to Policronio purely for taxation purposes,
without intending to transfer ownership over the subject lands. (as there
was no consideration in that contract) ​Lacking, therefore, in an absolutely
simulated contract is consent which is essential to a valid and enforceable
contract.
FACTS:
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1.
2.
3.
4.
5.
6.
7.
8.
9.
Alfonso Ureta (Alfonso) begot 14 children, including Policronio
and Liberato.
Alfonso was rich. Policronio, the eldest, was the only child of
Alfonso who failed to finish schooling and instead worked on his
father’s lands.
Sometime in October 1969, Alfonso and four of his children, (
Policronio, Liberato, Prudencia, and Francisco) met at the house of
Liberato where executed 4 Deeds of Sale covering several parcels
of land in favor of his children and his common-law wife to avoid
paying inheritance tax. The Deed of Sale in favor of Policronio,
covered 6 parcels of land.
Since the sales were only made for taxation purposes and no
monetary consideration was given, Alfonso continued to own,
possess and enjoy the lands and their produce.
When Alfonso died, Liberato acted as the administrator of his
father’s estate. He was later succeeded by his sister Prudencia, and
then by her daughter, Carmencita Perlas.
Then Policronio died.
Alfonso’s heirs executed a Deed of Extra-Judicial Partition, which
included all the lands that were covered by the 4 deeds of sale.
Conrado, Policronio’s eldest son, representing the Heirs of
Policronio, signed the Deed of Extra-Judicial Partition in behalf of
his siblings.
Subsequently, the Heirs of Policronio found tax declarations in his
name covering the six parcels of land. On June 15, 1995, they
obtained a copy of the Deed of Sale executed on October 25, 1969
by Alfonso in favor of Policronio. Not long after, on July 30, 1995,
the Heirs of Policronio allegedly learned about the Deed of
Extra-Judicial Partition when it was published in the July 19, 1995
issue of the Aklan Reporter.
Believing that the six parcels of land belonged to their late father,
and as such, excluded from the Deed of Extra-Judicial Partition,
the Heirs of Policronio sought to amicably settle the matter with
the Heirs of Alfonso. Earnest efforts proving futile, the Heirs of
Policronio filed a Complaint for Declaration of Ownership,
Recovery of Possession, Annulment of Documents, Partition, and
Damages .
10. RTC: Dismissed the complaint.
11. CA: Modified RTC Decision. Declared of Extra-Judicial Partition
ANNULLED and REMANDED the case to RTC for the proper
partition.
12.
ISSUE: W/N ​THE DEED OF SALE VALID? NO. IS IT
ABSOLUTELY SIMULATED.
RATIO:
1.
2.
3.
4.
The Deed of Sale was not the result of a fair and regular private
transaction because it was absolutely simulated.
Art. 1345. Simulation of a contract may be absolute or relative.
The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real
agreement.
In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. The
main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or
in any way alter the juridical situation of the parties. As a result, an
absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the
contract.
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5.
6.
7.
Lacking, therefore, in an absolutely simulated contract is consent
which is essential to a valid and enforceable contract.Here,
Alfonso simulated a transfer to Policronio purely for taxation
purposes, without intending to transfer ownership over the subject
lands.
The primary consideration in determining the true nature of a
contract is the intention of the parties. Tntention is determined not
only from the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties.
The true intention of the parties (that the Deed of Sale was one of
the 4 absolutely simulated Deeds of Sale which involved no actual
monetary consideration, executed by Alfonso in favor of his
children) in this case was sufficiently proven by the Heirs of
Alfonso:
a. Amparo Castillo, the daughter of Liberato, testified to the
circumstances of the execution including their
conversation.
b. The other Deeds of Sale executed by Alfonso all bearing
the same date of execution were uncontested by the Heirs
of Policronio. The lands which were the subject of these
Deeds of Sale were in fact included in the Deed of
Extra-Judicial Partition executed by all the heirs of
Alfonso which expressly stipulated that the signatories
recognize and acknowledge as a fact that the properties
presently declared in their respective names or in the
names of their respective parents and are included in the
foregoing instrument are actually the properties of the
deceased Alfonso Ureta and were transferred only for the
purpose of effective administration and development and
convenience in the payment of taxes and, therefore, all
instruments conveying or affecting the transfer of said
properties are null and void from the beginning.
c. Alfonso continued to exercise all the rights of an owner
even after the execution of the Deeds of Sale. Neither
d.
e.
f.
Policronio nor his heirs ever took possession of the
subject lands from the time they were sold to him, and
even after the death of both Alfonso and Policronio.
The tenants of the lands never turned over the produce of
the properties to Policronio or his heirs but only to
Alfonso and the administrators of his estate. Neither was
there a demand for their delivery to Policronio or his
heirs. Neither did Policronio ever pay real estate taxes on
the properties.
Policronio’s failure to take exclusive possession of the
subject properties or, in the alternative, to collect rentals,
is contrary to the principle of ownership. It is a clear
badge of simulation that renders the whole transaction
void.
Policronio never disclosed the existence of the Deed of
Sale to his children suggests that he was aware that the
transfer was only made for taxation purposes and never
intended to bind the parties
Other issues (Not Pertinent)
On Absence and Inadequacy of Consideration
● No money was paid for the sale. Where a deed of sale states
that the purchase price has been paid but in fact has never
been paid, the deed of sale is null and void for lack of
consideration.
Prior Action Unnecessary
● A simulated contract of sale is without any cause or
consideration, and is, therefore, null and void; in such case,
no independent action to rescind or annul the contract is
necessary, and it may be treated as non-existent for all
purposes. A void or inexistent contract is one which has no
force and effect from the beginning, as if it has never been
entered into, and which cannot be validated either by time or
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ratification. A void contract produces no effect whatsoever
either against or in favor of anyone; it does not create,
modify or extinguish the juridical relation to which it
refers. Therefore, it was not necessary for the Heirs of
Alfonso to first file an action to declare the nullity of the
Deed of Sale prior to executing the Deed of Extra-Judicial
Partition.
Personality to Question Sale
● The right to set up the nullity of a void or non-existent
contract is not limited to the parties, as in the case of
annullable or voidable contracts; it is extended to third
persons who are directly affected by the contract. Thus,
where a contract is absolutely simulated, even third persons
who may be prejudiced thereby may set up its
inexistence. The Heirs of Alfonso are the children of
Alfonso, with his deceased children represented by their
children (Alfonso’s grandchildren). The Heirs of Alfonso are
clearly his heirs and successors-in-interest and, as such, their
interests are directly affected, thereby giving them the right
to question the legality of the Deed of Sale.
Prescription
Art. 1410. The action for the declaration of the inexistence of a
contract does not prescribe.
Validity of the Deed of Extra-Judicial Partition
● Partition among heirs is not legally deemed a conveyance of
real property resulting in change of ownership. It is not a
transfer of property from one to the other, but rather, it is a
confirmation or ratification of title or right of property that
an heir is renouncing in favor of another heir who accepts
and receives the inheritance. It is a designation and
segregation of that part which belongs to each heir. The
●
●
Deed of Extra-Judicial Partition cannot be considered as an
act of strict dominion. Hence, a special power of attorney is
not necessary. In fact, as between the parties, even an oral
partition by the heirs is valid if no creditors are affected. The
requirement of a written memorandum under the statute of
frauds does not apply to partitions effected by the heirs
where no creditors are involved considering that such
transaction is not a conveyance of property resulting in
change of ownership but merely a designation and
segregation of that part which belongs to each heir.
Conrado’s failure to obtain authority from his co-heirs to
sign the Deed of Extra-Judicial Partition in their behalf did
not result in his incapacity to give consent so as to render the
contract voidable, but rather, it rendered the contract valid
but unenforceable against Conrado’s co-heirs for having
been entered into without their authority.
However, the evidence show that the Deed of Extra-Judicial
Partition is not unenforceable but, in fact, valid, binding and
enforceable against all the Heirs of Policronio for having
given their consent to the contract.
o It is difficult to believe that Conrado did not inform
his siblings about the Deed of Extra-Judicial
Partition for more than 5 years from the time he
signed it, especially after indicating in his testimony
that he had intended to do so.
o Conrado retained possession of one of the parcels of
land adjudicated to him and his co-heirs in the Deed
of Extra-Judicial Partition.
o The heirs of Policrinion obtained a loan from a bank
and to mortgage one of the parcels of land
adjudicated to them in the Deed of Extra-Judicial
Partition to secure payment of the loan.
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o
In a letter sent by their counsel to the Heirs of
Alfonso requesting for amicable settlement, there
was no mention that Conrado’s consent to the Deed
of Extra-Judicial Partition was vitiated by mistake
and undue influence or that they had never
authorized Conrado to represent them or sign the
document on their behalf.
SEPARATE OPINIONS: NONE
CONCURRING: NONE
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21. Cariño v. CA (BARNEY)
July 31, 1987 | Padilla, J. | Essential Requisites of Contracts: Consent Simulation
2.
PETITIONER​: Juanito Cariño and Cirila Vicencio
RESPONDENTS​: Court of Appeals, Pablo Encabo and Juanita de los Santos,
and Land Authority
3.
SUMMARY​: Encabo, through Vicencio, sold a parcel of land to Quesada, upon
condition that LTA approves the same. LTA disapproved, even when Quesada
already entered into possession of the lot. Afterwards, Encabo executed a Deed
of Sale of House and Transfer of Rights (“D-1”) to convey to Cariño and
Vicencio his rights over the land. 2 years later, Quesada resold to Encabo the
house, then Cariño sought approval of the transfer of the rights to them, based on
D-1. Encabo objected, and filed an action in court to declare him as owner and
for the Cariños to deliver the possession of the lot. Trial court and CA ruled in
favor of the Encabos. In the SC, the issue was whether D-1 was simulate. The
SC ruled that it indeed was, due to its inconsistencies and circumstances pointing
to the fact that the Escabos are the real owners of the lot and the lack of intent to
transfer rights over the lot to the Cariños. SC ruled that the contract was
simulated.
4.
DOCTRINE: ​Simulation of contracts refers to the fact the apparent contract is
not really desired or intended to produce legal effects nor in any way alter the
juridical situation of the parties.
Art. 1409 states that simulated or fictitious contracts are inexistent and void from
the beginning. These contracts cannot be ratified, neither can the right to set up
the defense of illegality be waived.
FACTS:
1. Private respondent Encabo purchased a sale of land which was part
of an estate purchased by the government, for resale to tenants or
occupants who are qualified to own public lands in the Philippines.
5.
6.
7.
8.
Afterwards, Encabo, through his agent Vicencio (one of the
petitioners), came to an agreement with Quesada, transferring
rights over the lot to the latter, conditioned upon approval by the
Land Tenure Administration (LTA).
LTA disapproved the transfer because Quesada was not qualified
to acquire the lot. But Quesada already entered into possession and
made investments on the land, and allowed Vicencio to enter into
possession as well.
In November 1958, Encabo executed a ​Deed of Sale of House and
Transfer of Rights​, purportedly conveying to petitioners (Cariño &
Vicencio, they are husband and wife) his rights over the land,
subject to approval of LTA. He wrote 2 letters to LTA, without
making mention of who the transferee would be, requesting
permission to transfer his rights.
2 years later, on April 18, 1960, Encabo and Quesada executed a
document where Quesada resold the house and lot to Encabo.
The day after, April 19, 1960, Cariño sought approval of the
transfer of rights to him on the basis of the ​Deed of Sale of House
and Transfer of Rights executed by Encabo. Encabo objected, and
both claimed the right to purchase the lot.
LTA said status quo should be maintained, as only the courts can
decide on the authenticity of the deed. Spouses Encabo filed an
action in the CFI of Manila to declare themselves as owner, and for
the Cariños to deliver the land to them. CFI rendered decision in
favor of the Encabos, and instructed the Cariños to remove their
house on the lot.
CA affirmed, and a petition for review was filed with the SC.
ISSUES:
1. WON the ​Deed of Sale of House and Transfer of Rights
(hereinafter, D-1), which was relied upon by the Cariños, is
simulated and is therefore, an inexistent deed of sale? - YES
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RATIO:
7.
1.
2.
3.
4.
5.
6.
There is substantial and convincing evidence that D-1 was a
simulated deed of sale and transfer of rights.
Simulation of contracts refers to the fact the apparent contract
is not really desired or intended to produce legal effects nor in
any way alter the juridical situation of the parties.
Under the circumstances of the transaction, the parties knew that
D-1 was at once fictitious and simulated, where none of the parties
intended to be bound thereby.
First​, testimony of Vicencio during her direct examination was
grossly inconsistent with her statements made in the LTA. These
are badges of untruthfulness, showing that no actual and real sale
of the lot took place between the Encabos and the Cariños.
a. Different testimonies on the amount she paid to the
Encabos (500 in lower court, 1000 in LTA)
b. Different testimonies on where D-1 was signed by the
Encabos (Sta. Mesa in lower court, Las Piñas in LTA)
Second​, the Cariños could not produce the receipts evidencing their
alleged payments to the Land Authority for the lot, nor the
Agreement to Sell. Vicencio testified that the Juana Encabo took
from Vicencio her Agreement to Sell and the receipts in order to
mortgage the land. The fact that they were delivered to Encabo
amounted to an act of complete ownership and control of the
property by the Encabos.
a. A more credible reason for the surrender of the papers
was the one mentioned by the Cariños in LTA, alleging
that due to evident machinations by the Encabos upon the
Cariños, the former maneuvered the latter into releasing to
him the receipts.
Third​, there was a failure to mention the names of the Cariños in
the applications with the LTA filed by Encabo. These applications
were mere speculations by Encabos if they should desire to sell the
8.
9.
10.
11.
12.
13.
lot later on, and ​no inference can be made that they intended to
transfer the lot to the Cariños.
Fourth​, D-1 was executed on Nov 1985 but the Cariños petition to
LTA to approve the transfer was only on April 1960. It was made
just the day after Quesada resold the lot to Encabo. The lack of
eagerness of the Cariños to apply reveals their own conviction that
the D-1 is not real and effective between them and Encabos.
Fifth​, there is merit in Encabos’ claim that the deed of sale in favor
of the Cariños was executed to protect the money that Quesada
invested in the purchase of the rights, which transfer was later on
disapproved. Quesada said he did this by putting Vicencio as the
vendee in D-1, when in fact, Encabo and Quesada meant her only
as a dummy for the Quesada.
This is entirely possible because Vicencio was privy to all
transactions between Encabo and Quesada. Vicencio could have
been used by Encabo and Quesada as dummy, or Vicencio herself
can lend a hand to protect the interests of Quesada.
The circumstances surrounding the execution of D-1 are bereft of
credence. They lead to a conclusion that there was no real and
actual Deed of Sale entered into. On the contrary, the Encabos
have a preponderance of evidence negating the validity of the
deed.
Art. 1409 states that simulated or fictitious contracts are
inexistent and void from the beginning. These contracts cannot
be ratified, neither can the right to set up the defense of
illegality be waived.
Nonetheless, even if D-1 is valid, LTA has yet to approve the same
so D-1 is not enforceable against LTA.
Petition denied for lack of merit.
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Sps. Javier argues that the deeds are
null and void for lack of cause or
consideration.
SC: The true cause or consideration
of said deed was the transfer of the
forest concession of Tiro to Sps.
Javier for P120,000.00. (Hindi yung
shares of stocks yung consideration
but yung forest concession)
22. Javier v. CA (MERYL)
March 15, 1990 | Regalado, ​J.​ | Contract – LACK OF CAUSE
PETITIONER​: Jose M. Javier and Estrella F. Javier
RESPONDENTS​: Court of Appeals, Leonardo Tiro
SUMMARY​: Tiro is a holder of an ordinary timber license. He executed two
contracts in favor of Sps. Javier.
Deed of Assignment – VALID
Agreement – VOID
`For 120,000, Tiro assigned to Sps.
Javier, his “shares of stocks” in the
Timberwealth Corporation.
(Tiro had a pending application for
an additional forest concession
covering an area of 2,000 hectares
southwest of and adjoining the area
of the concession subject of the deed
of assignment.)
For P30,000, Tiro ceded his inchoate
rights to Timberwealth Corporation.
Since Tiro did not obtain that
approval, said deed produces no
effect.
DOCTRINE: ​The previous and simultaneous and subsequent acts of the parties
are properly cognizable indica of their true intention. Where the parties to a
contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the mutual
intention of the parties at the time of contracting.
FACTS:
1.
Leonardo Tiro (Tiro) is a holder of an ordinary timber license issued by
the Bureau of Forestry covering 2,535 hectares in the town of Medina,
Misamis Oriental.
2.
Tiro executed a ​Deed of Assignment in favor of Jose and Estrella
Javier. For P120,000 Tiro assigns, transfers, and conveys unto Sps.
Javier, his shares of stocks in the Timberwealth Corporation. P20,000
shall be paid upon signing of this contract. The balance of P100,000.00
shall be paid, P10,000.00 every shipment of export logs produced from
the forest concession of Timberwealth Corporation.
3.
Tiro also had a pending application for an additional forest concession
covering an area of 2,000 hectares southwest of and adjoining the area
of the concession subject of the deed of assignment.
4.
Hence, Tiro and Sps. Javier entered into another ​Agreement​. For
P30,000, Tiro agrees and binds himself to transfer, cede and convey
There is a suspensive condition
which is for Tiro to obtain approval
from the Bureau of Forestry.
For failure of Sps. Javier to pay the balance due under the contracts (deed of
assignment and agreement), Tiro filed an action against Sps. Javier.
SC: Its efficacy is subject to the
condition that the application of Tiro
for an additional area for forest
concession be approved by the
Bureau of Forestry.
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whatever rights he may acquire to Timberwealth Corporation, a
corporation duly organized and existing under the laws of the
Philippines, over a forest concession which is now pending application
and approval as additional area to his existing licensed area.
contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in
construing the contract, determining its meaning and ascertaining the
mutual intention of the parties at the time of contracting.
5.
Acting Director of Forestry wrote private respondent that his forest
concession was renewed but since the concession consisted of only
2,535 hectares, he was therein informed that he should form an
organization with other adjoining licensees so as to have a total holding
area of not less than 20,000 hectares of contiguous and compact
territory and an aggregate allowable annual cut of not less than 25,000
cubic meters. ​Otherwise, his license will not be further renewed.
The deed of assignment is a relatively simulated contract which states a
false cause or consideration, or one where the parties conceal their true
agreement. A contract with a false consideration is not null and void per se.
Under Article 1346 of the Civil Code, a relatively simulated contract, when
it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds
the parties to their real agreement.
6.
For failure of Sps. Javier to pay the balance due under the two deeds of
assignment (deed of assignment and agreement), Tiro filed an action
against Sps. Javier.
2 - SC agrees with petitioners that they cannot be held liable thereon. Its
efficacy is subject to the condition that the application of Tiro for an
additional area for forest concession be approved by the Bureau of Forestry.
Since Tiro did not obtain that approval, said deed produces no effect.
7.
Sps. Javier argues that the deeds are null and void since Tiro failed to
comply with his contractual obligations and that the conditions for the
enforceability of the obligations of the parties failed to materialize.
ISSUES:
1. (Main Issue) Whether or not the deed of assignment is void for
total absence of consideration – No
2. Whether or not the agreement is void for non-fulfillment of the
conditions stated therein – Yes
RATIO:
When a contract is subject to a suspensive condition, its birth or effectivity
can take place only if and when the event which constitutes the condition
happens or is fulfilled. 28 If the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed.
SEPARATE OPINIONS: ​None
CONCURRING: ​None
1 - Sps. Javier contend that the deed of assignment conveyed to them the
shares of stocks of private respondent in Timberwealth Corporation. Since
said corporation never came into existence, no share of stocks was ever
transferred to them, hence the said deed is null and void for lack of cause or
consideration.
SC does not agree. The true cause or consideration of said deed was the
transfer of the forest concession of Tiro to Sps. Javier for P120,000.00.
The previous and simultaneous and subsequent acts of the parties are
properly cognizable indica of their true intention. Where the parties to a
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23. Formaran vs. Ong (​Myling​)
8 July 2013 | Perez,​ J​ | Simulated Contracts
PETITIONER​: Dr. Lorna C. Formaran
RESPONDENTS: ​Dr. Glenda B. Ong and Solomon S. Ong
SUMMARY​: Glenda’s parents donated land to Lorna in 1967. Less than
two months after the donation, Glenda requested Lorna to execute a Deed of
Absolute Sale (DAS) for half of the land she received. Glenda said that she
will use this to borrow money from the bank to buy a dental chair. There
was no monetary consideration in exchange for executing the DAS. A
month after, however, Glenda’s father assured Lorna that they did not
proceed with the loan with the interest rate being too high and thus they
threw away the DAS.
In 1996 or 29 years after the donation and the execution of the DAS, Glenda
filed a complaint for unlawful detainer against Lorna. Lorna discovered that
the DAS was registered on May 25, 1991. Glenda denied the allegations of
Lorna and claimed that money was exchanged, that she did not need to
borrow from the bank to buy a dental chair, and that the delay in the
registration of the DAS was to accommodate the bank loan of Lorna.
Lorna filed an action for annulment of the DAS. The Court decided that the
DAS was simulated hence void. Among the reasons the Court stated
supported Lorna’s claims were: that there was no monetary consideration
for the sale, the belated registration of the DAS 24 years after execution, that
Lorna had actual possession of the property and her house stood on a part of
the lot, that Glenda never introduced improvements, and that Lorna was
able to mortgage the land.
DOCTRINE:
The Court is in accord with the observation and findings of the RTC thus:
The amplitude of foregoing undisputed facts and circumstances clearly
shows that the sale of the land in question was purely simulated. It is
void from the very beginning (Article 1346, New Civil Code).
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
FACTS:
1.
On June 25, 1967, spouses Melquiades Barraca and Praxedes
Casidsid donated land ​intervivos​ to Dr. Lorna Casidsid Formaran. Praxedes
was the aunt of Lorna as the latter's father was the brother of Praxedes.
2.
Less than two months after the donation, Glenda and her father,
Melquiades Barraca, came to Lorna’s residence asking for help. They were
borrowing one-half of the land donated​ to Lorna so that Glenda could
obtain a loan from the bank to buy a dental chair. ​They proposed that
Lorna sign an alleged sale​ over the said portion of land.
3.
Acceding to their request, Lorna signed on August 12, 1967 a
prepared DAS which Glenda and her father brought along with them
covering the land in question without any money involved. ​There was no
monetary consideration in exchange for executing the Deed of Absolute
Sale.​ Lorna also did not appear before the Notary Public when the DAS was
allegedly acknowledged by her.
4.
A month thereafter, Lorna inquired from her uncle, Melquiades
Barracca, if they have obtained the loan. Melquiades informed her that ​they
did not push through with the loan because the bank's interest rate was
high.​ Her uncle further​ ​replied that ​they crumpled the DAS and threw it
away. ​With this, Lorna no longer bothered about the document and thought
that there was no more transaction. Besides, she is also in actual possession
of the land and have even mortgaged the same.
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5.
As owner thereof, Lorna declared the land for taxation purposes. She
religiously paid its realty taxes. She mortgaged the land to Aklan
Development Bank to secure payment of a loan.
6.
​In 1974, Lorna transferred her residence from Aklan to Antipolo City
where she has been residing up to the present time. From the time she
signed the DAS in August 1967 up to the present time of her change of
residence to Antipolo City, ​Glenda never demanded actual possession of
the land in question, except when the Glenda filed on May 30, 1996 a
case for unlawful detainer against her.
7.
Following the filing of the ejectment case, she learned for the first
time that ​the DAS was registered on May 25, 1991 and was not thrown
away contrary to what Melquiades Barraca told her.​ That was also the
first time she learned that the land in question is now declared for taxation
purposes in the name of Glenda.
8.
The case for unlawful detainer was decided on September 2, 1997, in
favor of Glenda. Lorna was made to vacate the land in question.
9.
Glenda maintained that there was money involved affecting the sale
of the land in her favor. The sale was not to enable her to buy a dental chair
for she had already one at the time. Besides, the cost of a dental chair in
1967 was only P2,000.00 which she can readily afford. She further alleged
that the DAS was only registered on May 25, 1991 in order to accommodate
Lorna who mortgaged the land to Aklan Development Bank.
10. Lorna filed an action for annulment of the DAS against Glenda before
the RTC of Kalibo, Aklan.
11. On December 3, 1999, the trial court rendered a decision ​in favor of
Lorna by declaring the DAS null and void for being an absolutely
simulated contract and for want of consideration;​ declaring Lorna as the
lawful owner entitled to the possession of the land in question; ordering the
cancellation of Glenda’s Tax Declaration; and payment to Lorna for
attorney’s fees and litigation expenses.
12. Glenda coursed an appeal to the Court of Appeals (CA). The CA, on
August 30, 2007, reversed and set aside the decision of the trial court and
ordered petitioner to vacate the land in question and restore the same to
respondents.
ISSUES:
13.
Is the Deed of Absolute Sale between Lorna and Glenda
simulated? ​YES
RATIO:
14. The petition sufficiently shows with convincing arguments that the
decision of the CA is based on a mis-appreciation of facts. The Court
believes and so holds that the subject DAS is indeed simulated, as it is:
(1) Totally devoid of consideration;
(2) It was executed on August 12, 1967, less than two months from
the time the subject land was donated to Lorna on June 25, 1967 by no
less than the parents of Glenda Ong;
(3) On May 18, 1978, Lorna mortgaged the land to the Aklan
Development Bank for a P23,000.00 loan;
(4) From the time of the alleged sale, Lorna has been in actual
possession of the subject land;
(5) ​The alleged sale was registered on May 25, 1991 or about
twenty-four (24) years after execution;
(6) Glenda Ong never introduced any improvement on the subject
land; and
(7) Lorna's house stood on a part of the subject land.
These are facts and circumstances which may be considered badges of bad
faith that tip the balance in favor of Lorna.
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15. The Court is in accord with the observation and findings of the RTC
thus: ​"The amplitude of foregoing undisputed facts and circumstances
clearly shows that the sale of the land in question was purely simulated.
It is void from the very beginning​ (Article 1346, New Civil Code).
16. If the sale was legitimate, Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes,
registered the sale, paid realty taxes, introduced improvements therein and
should not have allowed Lorna to mortgage the land. These omissions
properly militated against Glenda's submission that the sale was legitimate
and the consideration was paid.
17. While the DAS was notarized, it cannot justify the conclusion that the
sale is a true conveyance to which the parties are irrevocably and
undeniably bound. Although the notarization of DAS, vests in its favor the
presumption of regularity, it does not validate nor make binding an
instrument never intended, in the first place, to have any binding legal effect
upon the parties thereto (Suntay vs. Court of Appeals, G.R. No. 114950,
December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al.,
G.R. No. 119974, June 30, 1999)."
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24. Villanueva v. CA (Ian)
GR: 114870 | 26 May 1995 | Davide, Jr., ​ J​ | Art. 1323: Acceptance of Offer
PETITIONER​: Miguela R. Villanueva, Richard R. Villanueva, &
Mercedita Villanueva
RESPONDENTS: ​Court of Appeals, Central Bank of the Philippines,
Ildefonso C. Ong, & Philippine Veterans Bank
SUMMARY​:
The petitioner, Villanueva, the original owner of the disputed lots (2 Parcel
of lands in Muntinlupa, Metro Manila), sought to repurchase the lots from
the PVB after being informed that the lots were about to be sold at auction.
On the other hand, Private respondent, Ong, offered to purchase said lots
from PVB. Ong did not receive any notice of the approval of his offer. It
was only when he returned from the U.S and inquired about the status of his
bid that he came to know of the approval. The PVB then was placed under
receivership due to insolvency. Ong tendered the sum of P100,000.00
representing the balance of the purchase price of the litigated lots, with
which, an employee of the PVB received the amount conditioned upon
approval by the Central Bank liquidator. Later, he filed an action for specific
performance against the Central Bank. Villanueva also filed her claim in the
liquidation proceeding. The ​RTC ruled for petitioner but the ​CA ​held for
Ong ​contending that the approval of Ong’s offer constitutes an acceptance,
which resulted to a perfected contract of sale. Thus, he has a better right
over the disputed lots. The issue in this case is WON the offer of Ong of
payment for the subject lands constitutes an acceptance which results to a
perfected contract. SC held in the ​negative. ​the insolvency of a bank and the
consequent appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property. Applying Article 1323 of the Civil
Code, Ong's offer to purchase the subject lots became ineffective because
the PVB became insolvent before the bank's acceptance of the offer came to
his knowledge. Hence, the purported contract of sale between them did not
reach the stage of perfection. Corollary, he cannot invoke the resolution of
the bank approving his bid as basis for his alleged right to buy the disputed
properties.
DOCTRINE:
Applying Article 1323 of the Civil Code, Ong's offer to purchase the
subject lots became ineffective because the PVB became insolvent
before the bank's acceptance of the offer came to his knowledge. Hence,
the purported contract of sale between them did not reach the stage of
perfection. Corollary, he cannot invoke the resolution of the bank
approving his bid as basis for his alleged right to buy the disputed
properties.
Article 1323 of the Civil Code, ​an offer becomes ineffective upon the
death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed​.
FACTS:
1. The petitioner herein, the original owner of the disputed lots (2
Parcel of lands in Muntinlupa, Metro Manila, 529 and 300 sq. m.
respectively), sought the help of one Jose Viudez, the then
Officer-in-Charge of the PVB branch in Makati if she could obtain
a loan from said bank.
2. However, she was swayed to execute a deed of sale covering said
lots in favour of Viudez and Andres Sebastian. New titles were
issued in the name of the PVB after the disputed lots were
foreclosed for failure to pay the loan granted in the name of Andres
Sebastian.
3. Miguela Villanueva sought to repurchase the lots from the PVB
after being informed that the lots were about to be sold at auction.
4. On the other hand, Private respondent herein, offered to purchase
said lots. Ong did not receive any notice of the approval of his
offer. It was only when he returned from the U.S and inquired
about the status of his bid that he came to know of the approval.
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5.
6.
7.
8.
The PVB then was placed under receivership due to insolvency.
Ong tendered the sum of P100,000.00 representing the balance of
the purchase price of the litigated lots.
An employee of the PVB received the amount conditioned upon
approval by the Central Bank liquidator.
Later, he filed an action for specific performance against the
Central Bank. Villanueva also filed her claim in the liquidation
proceeding.
The RTC ruled for petitioner but the CA held for Ong contending
that the approval of Ong’s offer constitutes an acceptance, which
resulted to a perfected contract of sale. Thus, he has a better right
over the disputed lots.
ISSUES:
13.
WON the offer of Ong of payment for the subject lands constitutes
an acceptance which results to a perfected contract. ​NO
RATIO:
1. There is no doubt that the approval of Ong's offer constitutes an
acceptance, the effect of which is to perfect the contract of sale
upon notice thereof to Ong. However, the peculiar circumstances
in this case is a legal obstacle to his claim of a better right and
deny support to the conclusion of the Court of Appeals.
2. Ong did not receive any notice of the approval of his offer. It was
only sometime in mid-April 1985 when he returned from the
United States and inquired about the status of his bid that he came
to know of the approval.
3. It must be recalled that the PVB was placed under receivership
pursuant to the MB Resolution of 3 April 1985 after a finding that
it was insolvent, illiquid, and could not operate profitably, and that
its continuance in business would involve probable loss to its
depositors and creditors.
4.
5.
6.
7.
The PVB was then prohibited from doing business in the
Philippines, and the receiver appointed was directed to
"immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all
the powers necessary for these purposes."
Under Article 1323 of the Civil Code, ​an offer becomes
ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed​.
The reason for this is that: The contract is not perfected except by
the concurrence of two wills which exist and continue until the
moment that they occur. The contract is not yet perfected at any
time before acceptance is conveyed; hence, the disappearance of
either party or his loss of capacity before perfection prevents the
contractual tie from being formed.
It has been said that where upon the insolvency of a bank a
receiver therefore is appointed, the assets of the bank pass beyond
its control into the possession and control of the receiver whose
duty it is to administer to assets for the benefit of the creditors of
the bank. Thus, ​the appointment of a receiver operates to
suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being
reposed in the receiver, and in this respect, the receivership is
equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.
IN SUMMARY:
●
●
the insolvency of a bank and the consequent appointment of a
receiver restrict the bank's capacity to act, especially in relation to
its property.
Applying Article 1323 of the Civil Code, Ong's offer to purchase
the subject lots became ineffective because the PVB became
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●
●
●
insolvent before the bank's acceptance of the offer came to his
knowledge.
Hence, the purported contract of sale between them did not reach
the stage of perfection. Corollary, he cannot invoke the resolution
of the bank approving his bid as basis for his alleged right to buy
the disputed properties.
Nor may the acceptance by an employee of the PVB of Ong's
payment of P100,000.00 benefit him since the receipt of the
payment was made subject to the approval by the Central Bank
liquidator of the PVB and was likewise ​disapproved on the ground
that the subject property was already in ​custodia legis​, and hence,
disposable only by public auction and subject to the approval of
the liquidation court.
The Court of Appeals therefore erred when it held that Ong had a
better right than the petitioners to the purchase of the disputed lots.
DISPOSITIVE PART:
WHEREFORE, the instant petition is GRANTED and the challenged
decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV No.
35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional
Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and
Sp. Proc. No. 85-32311 is hereby REINSTATED.
Respondent Philippine Veterans Bank is further directed to return to private
respondent Ildefonso C. Ong the amount of P100,000.00.
No pronouncement as to costs.
SO ORDERED.
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25. Bank of Commerce v. Manalo (Pamie)
February 9, 2006 | Callejo, Sr., ​J.​ | Essential Requisites- CONSENT
PETITIONER​: Bank of Commerce (formerly Boston Bank of the
Philippines)
RESPONDENTS​: Perla Manalo and Carlos Manalo, Jr.
SUMMARY​: XEI owned Xavierville Estate Subdivision. OBM bought
parcels of land, including lots 1 and 2, and XEI acted as agent to sell these
residential lots. Manalo bought lots 1 and 2. ​XEI set the price at
P348,060, with 20% downpayment. This was to be paid when XEI would
resume selling operations. Manalo built a house on the lot but failed to pay
despite demands by XEI. Subsequently, Boston Bank acquired Xavierville
Estate Subdivision from OBM. They requested Manalo to stop
construction since Boston Bank was the one who own the lots. Manalo
said they had a contract with OBM but was not able to show any
documents to support the claim. Lower courts ruled in favor of Manalo,
saying there was a perfected contract to sell. Boston Bank alleged that
there was no perfected contract to sell the two lots, as there was no
agreement between XEI and Manalo on the manner of payment as well as
the other terms and conditions of the sale. Issue: Is there a perfected
contract? SC held that there is no enforceable contract between the parties
since no manner of payment was agreed upon.
DOCTRINE:
A ​definite agreement as to the price is an essential element of a binding
agreement to sell.
The parties must also agree on the manner of payment of the price of
the property to give rise to a binding and enforceable contract of sale or
contract to sell. The agreement as to the ​manner of payment goes into
the price​, such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price.
NOTE​:
XEI: Xavierville Estate Inc. → XEI President: Ramos
OBM: Overseas Bank of Manila
CBM: Commercial Bank of Manila → renamed Boston Bank → renamed
Bank of Commerce
FACTS:
1. XEI owned parcels of land in QC known as the Xavierville Estate
Subdivision. XEI subdivided the property into residential lots and
offered it for sale.
2. XEI and OBM executed a Deed of Sale of Real Estate over some
lots, including Lot 1 and 2. XEI continued selling these residential
lots as agent of OBM.
3. XEI president, Ramos, engaged the services of Manalo to install a
water pump in his residence.
4. Manalo then proposed to Ramos that he will buy a lot in the
subdivision, and use as down-payment the amount owed by Ramos
in engaging his services (P34,887) to which Ramos agreed.
5. Manalo chose to buy Lots 1 & 2.
6. Ramos pegged the price at P348,060, with 20% downpayment,
P69,612 less P34,887, due on Dec. 31, 1972. The Contract of
Conditional Sale would then be signed on that date, but if the
selling operations of XEI resumed after that date, the balance of
the downpayment would fall due then, and the spouses would sign
the contract within 5 days from receipt of the notice of resumption
of such selling operations.
7. Manalo took possession of the property and began building his
house.
8. Afterwards, the spouses Manalo were notified of the resumption of
the selling operations of XEI. However, they ​did not pay the
balance of the downpayment because Ramos failed to prepare a
contract of conditional sale and transmit the same to Manalo for
their signature.
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9.
(A lot happened in the middle. Basta Manalo refused to pay despite
several statement of account sent by XEI)
XEI then turned over its selling operations to OBM. Subsequently,
Boston Bank acquired the Xavierville Estate from OBM
Boston Bank requested Manalo to stop any ongoing construction
on the property since it was the owner of the lot and the spouses
had no permission for such construction
Manalo informed them that they had a contract with OBM, through
XEI, to purchase the property. But they were not able to show any
documents to support this.
Boston Bank filed a complaint for unlawful detainer.
(The parties tried to negotiate. Settlement etc. no agreement)
Boston Bank say that they did not enter into a contract to sell with
Manalo.
Trial Court: Parties had a "complete contract to sell" over the lots,
and that they had already partially consummated the same.
CA: Affirmed. CA sustained the ruling of the RTC that they had
executed a Contract to Sell over the two lots but declared that “the
balance of the purchase price of the property amounting to
P278,448.00 was payable in fixed amounts, inclusive of
pre-computed interests”. (CA supplied terms of the contract)
Boston Bank MR alleging that there was no perfected contract
to sell the two lots, as there was no agreement between XEI
and Manalo on the manner of payment as well as the other
terms and conditions of the sale.
2.
ISSUES:
1. Whether or not there is a perfected contract to sell between Sps.
Manalo and Boston Bank, XEI and OBM? - NO
8.
RATIO:
1. For a perfected contract to sell to exist, there must be an
agreement of the parties, not only on the ​price of the property
sold, but ​also on the manner​ the price is to be paid by the vendee.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
3.
4.
5.
6.
7.
Under Art. 1458 of the Civil Code, in a contract of sale, one of the
contracting parties obliges himself to transfer the ownership of and
deliver a determinate thing, and the other to pay a price certain in
money or its equivalent.
If perfected, parties are bound to the fulfillment of what has been
expressly stipulated and to all the consequences which may be in
keeping with good faith, usage and law. On the other hand, when
the contract of sale or to sell is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical
relation between the parties.
A ​definite agreement as to the price is an essential element of a
binding agreement to sell. The fixing of the price can not be left to
the decision of one of the parties. But a price fixed by one, if
accepted by the other, gives rise to a perfected sale
The parties must also agree on the manner of payment of the
price of the property to give rise to a binding and enforceable
contract of sale or contract to sell. The agreement as to the ​manner
of payment goes into the price​, such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price.
Even if the buyer makes a downpayment, such payment cannot be
considered as sufficient proof of the perfection of any purchase and
sale between the parties.
In this case, there is ​no showing of the schedule of payment​.
Parties only agreed to the paying of 20% down-payment. The
letters sent by XEI to Manalo proves that the determination of the
terms of payment are yet to be agreed upon​.
So long as an ​essential element entering into the proposed
obligation of either of the parties ​remains to be determined by an
agreement which they are to make, ​the contract is incomplete
and unenforceable.
Another issue: Also, the ​CA unilaterally supplied an essential
element to the letter agreement of XEI and the respondents.
Courts should not undertake to make a contract for the
parties​, nor can it enforce one, the terms of which are in doubt.
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10. Manalo and XEI (or OBM for that matter) failed to forge a
perfected contract to sell the two lots; hence, respondents have no
cause of action.
Additional issue:
RA 6552: Absent a written notice of cancellation of the contract to sell from
the bank or notarial demand, the spouses had at least 60-day grace period
within which to pay.
CA said RA 6552 applied and gave Manalo 60 days to pay the
downpayment.
SC said that it applies only to a perfected contract to sell and not to a
contract with no binding and enforceable effect. Thus, does not apply in this
case.
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26. Platinum Plans v. Cucueco (ANNE)
August 25, 20006 | Azcuna, J. | CONSENT- Contract of Sale v. Contract to
Sell
PETITIONER​: Platinum Plans, Inc., Youth Educational Plans, Inc., and
Ernesto L. Salas
RESPONDENTS​: Romeo R. Cucueco
SUMMARY​: Cucueco filed a case for specific performance with damages
against Platinum Plans pursuant to an alleged contract of sale executed by them
for the purchase of a condominium unit. Cucueco offered to buy a condo from
Platinum in 2 installments of P2M each, which he claimed was accepted by
Platinum by encashing the checks is\sued. Cucueco was surprised to learn that
the full payment due on Sept 30 was changed by Platinum to Sept 23. Platinum
claimed that there was no meeting of minds between them, as evidenced by their
letter of non-acceptance. The issue here is whether or not the contract they
entered is a perfected contract of sale. The SC held that it is only a contract to
sell. They reversed the CA’s findings and reinstated that the trial court was
correct in finding that there was no meeting of minds in this case considering
that the acceptance of the offer was not absolute and unconditional. A contract to
sell would be rendered ineffective and without force and effect by the
non-fulfillment of the buyer’s obligation to pay. There were repeated written
notices sent by Platinum Plans to Cucueco that failure to pay the balance would
result in the cancellation of the contract and forfeiture of the down payment
already made. Thus, the cancellation made by Platinum Plans is valid and
reasonable but the P2M advanced by Cucueco should be returned by Platinum.
DOCTRINE: ​A contract to sell may not be considered as a contract of sale
because the first essential element of consent to a transfer of ownership is
lacking in the former​. Since the prospective seller in a contract to sell explicitly
reserves the transfer of title to the prospective buyer, the ​prospective seller does
not as yet unequivocally agree or consent to a transfer ownership of the
property subject of the contract to sell. On the happening of an event, that is,
the full payment of the purchase price, the obligation then arises to execute a
contract of sale that alone will transfer such ownership.
FACTS:
1. Cucueco filed a case for specific performance with damages
against Platinum Plans pursuant to an alleged contract of sale
executed by them for the purchase of a condominium unit.
2. Cucueco alleged that in July 1993, he offered to buy from Platinum
a condo unit he was leasing from the latter payable in 2
installments of P2M with the following terms and conditions:
a.
Cucueco will issue a check for P100,000 as earnest money
b.
He will also issue a post-dated check for P1.9M to be
encashed on September 30, 1993 on the condition that he will stop
paying rentals for the said unit after September 30
c.
In case Platinum Plans has an outstanding loan of less than
P2M with the bank as of December 1993, Cucueco shall assume
the same and pay the difference from the remaining P2M
3. Cucueco claimed that Platinum Plans accepted his offer—by
encashing the checks he issued.
4. Cucueco was surprised to learn that Platinum Plans had changed
the due date of the installment payment to September 23, 1993. He
argued that there was a perfected sale between him and Platinum
and as such, he may validly demand from the Platinum to execute
the necessary deed of sale transferring ownership and title over the
property in his favor
5. Platinum Plans denied Cucueco’s allegations and asserted that
Cucueco’s initial down payment was forfeited based on the
following terms and conditions:
a.
The terms of payment only includes two installments (August
1993 and September 1993)
b.
In case of non-compliance on the part of the vendee, all
installments made shall be forfeited in favor of the vendor
Platinum Plans
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6.
7.
c.
Ownership over the property shall not pass until payment of
the full purchase price
The trial court ruled in favor of Platinum, citing that since the
element of consent was absent there was no perfected contract. The
trial court ordered Platinum Plans to return the P2M they had
received from Cucueco, and for Cucueco to pay Platinum Plans
rentals in arrears for the use of the unit.
CA held that there was a perfected contract of sale even if both
parties never agreed on the date of payment of the remaining
balance.
ISSUES:
1. WON the contract is a perfected contract of sale- ​NO, it is only a
contract to sell.
RATIO:
1. In a contract of sale, the vendor cannot recover ownership of the
thing sold unless the contract itself is resolved and set aside. Based
on Art 1592, a party who fails to invoke judicially or by notarial
act would be prevented from blocking the consummation of the
same in light of the precept that mere failure to fulfill the contract
does not by itself have the effect of rescission.
2. A contract to sell is a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the subject
property despite its delivery to the prospective buyer, commits to
sell the property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon. Full payment here is
considered as a positive suspensive condition.
3. If the party contracting to sell, because of non-compliance with the
suspensive condition, seeks to eject the prospective buyer from the
land, the seller is enforcing the contract and is not resolving it. The
failure to pay is not a breach of contract but an event which
prevent the obligation to convey title from materializing.
4.
Based on the foregoing distinctions, a contract to sell may not be
considered as a contract of sale because the first essential
element of consent to a transfer of ownership is lacking in the
former​. Since the prospective seller in a contract to sell explicitly
reserves the transfer of title to the prospective buyer, the
prospective seller does not as yet unequivocally agree or
consent to a transfer ownership of the property subject of the
contract to sell. On the happening of an event, that is, the full
payment of the purchase price, the obligation then arises to execute
a contract of sale that alone will transfer such ownership.
5. Neither side was able to produce any written evidence
documenting the actual terms of their agreement. ​The trial court
was correct in finding that there was no meeting of minds in
this case considering that the acceptance of the offer was not
absolute and unconditional​. This further confirmed the
absence of the contractual element of consent.
6. In earlier cases, SC held that before a valid contract of sale can
exist, the manner of payment of the purchase price must first be
established.
7. The court cannot step in to cure the deficiency by fixing the period
pursuant to Art. 1191, which incidentally applies only to contracts
of sale. Because of the differing dates set by both parties, the court
would have no basis for granting Cucueco an extension of time
within which to pay the outstanding balance
8. The cancellation of a contract should be made known to the other
party as explained in ​UP v. De los Angeles​.
9. There were repeated written notices sent by Platinum Plans to
Cucueco that failure to pay the balance would result in the
cancellation of the contract and forfeiture of the down payment
already made. Thus, the cancellation made by Platinum Plans is
valid and reasonable (except for the forfeiture of the down
payment)
10. A contract to sell would be rendered ineffective and without force
and effect by the non-fulfillment of the buyer’s obligation to pay.
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There can be no rescission of an obligation that is still non-existent
as the suspensive condition has not yet occurred.
11. The CA’S reliance on ​Levy ​Hermanos v. Gervacio is misplaced
because it was unnecessary for CA to distinguish whether the
transaction between the parties was an installment sale or a straight
sale. In the first place, there is no valid and enforceable contract to
speak of.
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27. Adelfa Properties v. CA (Marian)
Jan 25, 1995 | J. Regalado | Consent - Option Contract v. Contract to Sell
PETITIONER​: Adelfa Properties Inc.
RESPONDENTS​: CA, Rosario Jimenez-Castaneda, Salud Jimenez
SUMMARY​: Adelfa and Rosario & Salud entered into an exclusive option to
purchase which was misconstrued to be an option contract but really was a
contract to sell. The terms laid out by their contract is indicative of the identity
of the contract despite its title of being an “exclusive option to purchase.” The
indicative terms are:
1. Delivery of title upon payment of full purchase price on Nov 30, 1989
2. No stipulation on recovery of item in case of breach of contract
(non-payment)
The conflict arose when the nieces of the vendors filed a civil case against
Adelfa seeking to annul the deed of sale between Adelfa and Rosario & Salud.
Because of this supervening event which happened a day before the due date,
Adelfa withheld its payment and offered to pay on Apr 16, 1990, in view of the
dismissal of the civil case against Adelfa which actually happened on Feb 23,
1990 pa (note that the lapse in dates will lead the SC to uphold the CA’s ruling
in favor of Rosario & Salud despite the lengthy discussion of how this is a
perfected contract to sell, not a mere option contract). Rosario & Salud returned
the P25k downpayment (fact 5c) but Adelfa refused to return the title; hence this
petition.
The RTC & CA ruled against Adelfa because its option contract with Rosario &
Salud has already lapsed. The SC, on the contrary held that this is a perfected
contract to sell because it does not just give Adelfa the right to purchase. The
offer by Rosario & Salud has concurred with Adelfa’s acceptance of the terms;
thus, the contract was perfected by their mere consent.
DOCTRINE: ​Options do not bestow an obligation to party, it just gives them
the right to purchase on the time specified provided that the terms set forth by
the vendor are met. Contracts, on the other hand, are perfected by mere consent
provided that there is a concurrence of the offer & acceptance of the parties.
Also, if no form of acceptance is required, it can be determined from the facts of
the case as long as it is made affirmatively & clearly.
1.
2.
3.
4.
5.
6.
7.
Petition for review on certiorari of CA judgment
Rosario & Salud Jimenez (respondents) & their brothers, Jose &
Dominador, were registered co-owners of a land in Las Pinas
(17,210 sq.m.)
a. Jose & Dominador sold their share of the land (50%) to
Adelfa Properties (hereinafter, Adelfa) → Kasulatan sa
Bilihan ng Lupa
An extrajudicial partition of said subject land was made. The
eastern portion was given to Jose & Dominador. The western
portion was given to Rosario & Salud.
Adelfa later on said that it wanted to buy the western portion.
An Exclusive Option to Purchase was entered into by Adelfa &
Rosario & Salud with the ff conditions
a. Selling price of 8,655sq.m land → P2,856,150.00
b. P50,000 received by Rosario & Salud as option money
will be deducted from the selling price. The remainder,
P2,806,150, will be paid on or before Nov 30, 1989
c. In case of default of Adelfa to pay on Nov 30, 50% of the
option money will be forfeited to Rosario & Salud while
the other 50% shall be returned to Adelfa
d. All expenses such as taxes will be paid by Rosario &
Salud while registration expenses shall be shouldered by
Adelfa
However, since Salud’s land title was lost, a petition for
re-issuance of said copy was filed in court which was issued but
was retained by Atty. Bernardo, until he turned it over to Adelfa
But before Adelfa could pay, it received a summons of the
complaint against them & Jose & Dominador filed by the nieces of
Rosario & Salud to annul the deed of sale in favor of Household
Corp. (bagong party, daming party, party party)
a. Because of this, Adelfa told Rosario & Salud that it will
hold their payment muna & suggested that Rosario &
Salud should settle their problems with their nieces first
FACTS:
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b.
Adelfa told them that they will be waiting for Rosario &
Salud up to 7pm on Nov 30 (original date of payment) in
their office
c. Adelfa also sent this letter to Jose & Dominador
d. Salud did not heed the suggestion of Adelfa. They
considered Adelfa’s suspension of payment as “lack of
word of honor”
8. Subsequently, Adelfa caused the annotation on the title its:
a. Option contract with Rosario & Salud
b. Contract of sale with Jose & Dominador
9. Later on, Rosario & Salud sent Fransisca (new party, I assume the
niece) to see Atty. Bernardo to say that they were cancelling the
transaction
a. Atty. Bernardo offered to pay the purchase price instead
but he negotiated a deduction of P500,000 for the services
rendered in the civil case shouldered by Adelfa. He
bargained and lowered this to P300k but it was rejected
10. Makati RTC dismissed the civil case; thus, Adelfa caused the
annotation of the land title
a. On the same day, Rosario & Salud executed a Deed of
Conditional Sale to Emylene Chua (new party) for
P3,029,250 → P1.5M to be paid on that day, the
remainder on the transfer of said title
11. Atty. Bernardo then wrote to Rosario & Salud saying that since the
civil case against Adelfa was dismissed, Adelfa was game to pay
the remainder but Rosario & Salud ignored this
a. Days later, Rosario & Salud returned to Adelfa the P25k
(fact 5c)
b. Rosario & Salud requested Adelfa to return the land title
of Salud but Adelfa failed to so; thus, another civil case
was filed against Adelfa
12. The RTC ruled in favor of Rosario & Salud for the ff reasons
a.
The option contract between Adelfa & Rosario & Salud
has lapsed → suspension of payment initiated by Adelfa
was tantamount to rejection of the option
b. Suspension of payment (fact 7) by Adelfa was invalid
since the dispute involved the eastern lots (Jose &
Dominador’s) not Rosario & Salud’s
c. RTC then directed the cancellation of the exclusive option
to purchase (fact 5) & declared the sale to Emelyn Chua
(fact 10a) as valid
13. CA affirmed this. Hence this petition.
ISSUES:
1. WON the contract between Adelfa and Rosario & Salud is an
option contract is a contract of sale or a contract to sell. - Contract
to sell.
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.
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RATIO:
1. The difference:
Contract of sale
Contract to sell
Passage of ownership
Delivery of thing
Full payment of price
Recovery of ownership
Rescind
Failure of payment is
not a breach, it only
prevents the vendor to
convey the title
2.
3.
Deed of sale is considered absolute in nature if:
a. There’s a stipulation in the deed that the title is reserved
in the seller until full payment of price OR
b. No one giving the vendor the right to unilaterally resolve
the contract on buyer’s failure to pay within the period
agreed upon
2 points noted by the court that show that the Rosario & Salud
never intended to transfer ownership upon full payment of price
a. [1] Exclusive option to purchase → does not show that
Adelfa has to return the property in case of non-payment
i.
No stipulation on reconveyance of property to
Rosario & Salud if Adelfa does not do its part
ii.
Thus, there is an implied agreement that the
ownership does not pass until Adelfa has fully
paid the land
iii.
Art 1478 of the Civil Code does not require this
stipulation to be expressly made
iv.
^ implied stipulations are binding on the parties
and in effect, this is considered a CONTRACT
TO SELL
b. [2] There was no delivery of property to Adelfa.
i.
Though it may be argued that in fact 6, Atty.
Bernardo gave the land title to Adelfa, effecting
4.
5.
6.
7.
a delivery, Rosario & Salud claim that there was
no intent to deliver such title
The SC also believes that the contract to sell was perfected. Thus,
the CA erred when it said that this is a strict option contract.
a. An option, in the law of sales, is a continuing offer where
the owner stipulates the fixed price, time, and terms.
i.
An option is not a purchase, it secures a privilege
to buy [aka parang dibs]
ii.
It is a sale of right to purchase​.
iii.
It is not a contract until the terms have been
accepted & complied with on the time specified
by the vendor.
iv.
Basically, it is a contract wherein the vendor
gives the optionee the right to accept the offer &
buy
b. A contract is a meeting of the minds where 2 parties bind
to give or to do.
c. Perfected by mere consent. Manifested by meeting of
offer & acceptance.
Looking at the facts, we can see that there is a concurrence of the
offer to buy by Rosario & Salud + acceptance of Adelfa.
a. GR: except where a formal acceptance is required, it may
be made in any manner.
b. But it shall be noted that acceptance must be affirmatively
& clearly made.
Records show that Adelfa has accepted the offer of Rosario &
Salud under the terms of their contract as evidenced by the acts of
Adelfa’s counsel, Atty. Bernardo in assisting the filing a petition
for reconstitution (fact 6).
Adelfa’s obligation due on Nov 30 was an obligation to give not a
mere discretion to pay for the property.
a. Test to know if options / contract → W/N the agreement
can be specifically performed
b. This is not a case where no obligation was bestowed.
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c.
8.
An agreement is just an option if no obligation is
bestowed until he has made up his mind on the time
specified
The P50,000 paid by Adelfa was earnest money, not an option
money despite its name in the contract.
Earnest money
Option money
Part of purchase price
Distinct money for dibs
Given on sale
Sale not yet perfected
When given, buyer is bound to pay
full
When given, buyer not bound to
buy yet
9.
SEPARATE OPINIONS: None
CONCURRING: None
Narvasa, C.J., Puno and Mendoza, JJ., concur​.
Still, the court held that Rosario & Salud cannot be compelled to
sell the land to Adelfa because (1) Adelfa failed to consign the
purchase price after disturbance of nieces in line with Art 1590 of
Civil Code and (2) contract to sell was validly rescinded by
Rosario & Salud.
a. The records show that Adelfa knew the termination of the
civil case earlier than the date when they offered to pay
the purchase price.
b. Rosario & Salud’s extrajudicial rescission was valid
because a judicial or notarial act is not needed in a
contract to sell + there was a stipulation on automatic
rescission.
c. Adelfa is also estopped to seek redress for their right in
the contract because the records show that they did not
intend to take legal action to compel specific performance
from Rosario & Salud.
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28. Riviera Filipina v CA (Sel)
April 5, 2002 | De Leon Jr., J. | Essential Requisites of a Contract
PETITIONER​: Riviera Filipina, Inc.
RESPONDENTS​: Court of Appeals, Juan L. Reyes (now deceased),
substituted by his heirs, namely: Estefania B. Reyes, Juanita R. De La
Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes, Philippine Cypress
Construction & Development Corporation, Cornhill Trading Corporation
and Urban Development Bank
SUMMARY​: Reyes executed a Contract of LEase with Right of First
Refusal with Riviera involving a land along EDSA. Said land was
extrajudicially foreclosed by Prudential Bank. To redeem the property,
Reyes offered to sell the property to Riviera but there was disagreement as
to the price. So Reyes offered the land to Cypress and Cornhill which the
parties had reached to an agreement as to the price. Riviera claims that its
right of first refusal under the lease contract was violated thus it filed suit
to compel the Reyes, etc. to transfer the disputed title of the land. SC ruled
that nary a howl of protest or shout of defiance spewed forth from
Riviera’s lips, as it was, but a seemingly whimper of acceptance when
Reyes strongly expressed in a letter that Riviera had lost its right of first
refusal. Riviera cannot not be heard that had it been informed of the offer
of 5.3K of Cypress and Cornhill it would have matched said price. Reyes
was under no obligation to disclose the same pursuant to to Article 1339.
DOCTRINE: Article 1339 (#10)
FACTS:
1. Juan Reyes (Reyes) executed a Contract of Lease with Riviera -10-year renewable lease of Riviera involved a 1,108 sq.m. land
located along EDSA, QC.
2.
The land was subject of a Real Estate Mortgage executed by Reyes
in favor of Prudential Bank and was foreclosed because Reyes did
not pay.
3. The redemption period was about to expire and he knew he
couldn’t raise up enough money so he decided to sell it.
4. Par. 11 of the lease contract expressly states: ​LESSEE shall have
the right of first refusal should the LESSOR decide to sell the
property during the term of the lease
5. Reyes offered to sell the property to Riviera for 5k/sq.m but
Riviera wanted 3,5K. Reyes wouldn’t budge so the president of
Riviera said he’ll consult with the other board members.
6. 7 months later, Riviera said they’re willing to pay 4K but Reyes
said nope now it’s 6K since the value of the property had
appreciated in view of the plans of Araneta to develop the vicinity.
7. Atty. Juan (Reyes’ counsel) informed Riviera that they had 10 days
to decide since they had the right of first refusal and if they fail to
decide within the given period, they shall be deemed to have
waived their right.
8. Riviera replied and said they’re willing to pay 5K because they
said this the ​offer which they feel is the market price of the
property.
9. Atty. Juan replied: ​Let it be made clear that, much as it is the
earnest desire of my client to really give you the preference to
purchase the subject property, you have unfortunately failed to
take advantage of such opportunity and thus lost your right of first
refusal
10. Meanwhile, Reyes confided to Traballo (close friend and Pres. of
Cypress) about his predicament about the nearing expiry date of
the redemption period. Traballo expressed his interest in buying
the property. They met again the next day and Traballo bargained
for 5.3K/sq.m which Reyes agreed to.
11. The expiry date was nearing and the deal between Reyes and
Traballo was not yet formally concluded so Reyes decided to
approach Riviera again to find out if he was still interested in
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12.
13.
14.
15.
16.
buying the property. Riviera said that its final offer was still
5K/sq.m. Reyes kept insisting he wanted 5.3K
Meanwhile, Cypress already found a partner (Cornhill) and they
came up with the amount sufficient to cover the redemption money
with which Reyes paid to Prudential Bank to redeem his property.
A Deed of Absolute Sale was executed by Reyes in favor of
Cypress and Cornhill for 5.3M. On the same date, Cypress and
Cornhill mortgage the property to Urban Development Bank for
3M.
Riviera sought from Reyes, Cypress, and Cornhill a resale of the
subject property to it claiming that its right of first refusal under
the lease contract was violated.
Riviera filed the suit to compel Reyes, Cypress, Cornhill, and
Urban Development Bank to transfer the disputed title to the land
in favor of Riviera upon its payment of the price paid by Cypress
and Cornhill.
Trial court dismissed Riviera’s complaint. He appealed but CA
confirmed trial court’s decision.
ISSUES:
1. W/N Riviera’s right of first refusal was totally disregarded or
violated by Reyes by the latter’s sale of the subject property to
Cypress and Cornhill -- NO
RATIO:
1. Right of first refusal = amounts to a right to match in the sense that
it needs another offer for the right to be exercised
2. THUS, a right of first refusal means identity of terms and
conditions to be offered to the lessee and all other prospective
buyers and a contract of sale entered into in violation of a right of
first refusal of another person, while valid, is rescissible.
3. But analysis and construction should not be limited to the words
used in the contract, as they may not accurately reflect the parties’
true intent. The court must read a contract as the average person
would read it and should not give it a strained/forced construction.
4. Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance,
such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual
intention of the parties at the time for contracting (parties’ practical
construction of contract = evidence of their intention)
5. The actions of Reyes and Riviera to the contract of lease shaped
their understanding and interpretation of “right of first refusal” to
simply mean that should Reyes decide to sell the leased property
during the term of the lease, such sale should first be offered to
Riviera.
6. And that is exactly what happened -- a series of negotiations on the
price per square meter of the property with neither property,
especially Riviera, unwilling to budge from his offer, as evidenced
by the exchange of letters between the two
7. It can be clearly seen from Riviera’s letters that it was so
intractable in its position and took obvious advantage of the
knowledge of the time element in its negotiations with Reyes as
the redemption period of the property drew near.
8. Riviera strongly exhibited a “take it or leave it” attitude. It quoted
its “fixed and final” price of 5K. Nothing less, nothing more.
9. SC ruled that nary a howl of protest or shout of defiance
spewed forth from Riviera’s lips, as it was, but a seemingly
whimper of acceptance when Reyes strongly expressed in a
letter that Riviera had lost its right of first refusal. Riviera
cannot not be heard that had it been informed of the offer of
5.3K of Cypress and Cornhill it would have matched said
price.
10. Article 1339: silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose
certain facts, or unless according to good faith and the usages
of commerce the communication should be made.
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29. JG Summit v. CA (Mika)
January 31, 2005 | Puno | Essential Requisites of a Contract: Consent
PETITIONER​: JG Summit Holdings, Inc.
RESPONDENTS​: Court of Appeals (CA), Committee on Privatization
(COP), Asset Privatization Trust (APT), Philyards Holdings, Inc. (PHI)
SUMMARY:
NIDC and Kawasaki entered into a JVA for the management of
PHISELCO granting both parties a right of first refusal. The rights of
NIDC were transferred to the National Government making APT the
trustee of its shares in PHISELCO. COP and APT eventually decided to
sell the government’s share to private entities which converted
Kawasaki’s right of first refusal to right to top the highest bidder by 5%.
PHI was another corporation named by Kawasaki that could exercise the
right to top as provided in the agreement. At the bidding, JG Summit was
declared as the highest bidder (P2.030 billion) subject to the right to top
condition. Kawasaki/PHI, having the option to top the highest bidder,
was able to raise funds through consortium (joined by the losing bidders)
which merited them the execution of stock purchase agreement. (so like
kawasaki got the losing bidders para ma-top niya si JG Summit). Issues
are w/n Kawasaki/Phi violated the ASBR when they raised funds through
consortium and w/n JG Summit should have been granted the right to
purchase the shares despite being the highest bidder. SC held that PHI,
forming a consortium to raise the required amount to exercise the right to
top the highest bid by 5%, does not violate the JVA or the ASBR. JG
Summit should not have been granted as the option to top was made
known to all the parties and it is a well-settled rule that even the lowest
Bid or any Bid may be rejected or, in the exercise of sound discretion, the
award may be made to another than the lowest bidder.
DOCTRINE:​ (Case didn’t cite any related provision)
The fact that the losing bidder, has joined PHI ( the one with right to top)
in the latter's effort to raise P2.131 billion necessary in exercising the
right to top is not contrary to law, public policy or public morals.
The discretion to accept or reject a bid and award contracts is vested in
the Government agencies entrusted with that function. Even the lowest
Bid or any Bid may be rejected or, in the exercise of sound discretion, the
award may be made to another than the lowest bidder.
FACTS:
1.
2.
3.
4.
5.
The National Investment and Development Corporation
(NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, a
foreign corporation, for the construction, operation and
management of the Subic National Shipyard, which
subsequently became the Philippine Shipyard and Engineering
Corporation (PHISELCO).
The ​agreement grants the parties a right of first refusal
should either of them decide to sell, assign, or transfer its
interest in the joint venture unless the transferee is a GOCC or
Kawasaki affiliate.
On November 25, 1986, ​NIDC transferred all its rights and
interest to PNB, which were subsequently transferred to
the National Government​ pursuant to A.O. No. 14.
On December 8, 1986, Pres. Aquino established the COP and
APT to manage non-performing assets of the National
Government. Pursuant to this, the government and APT
entered into an agreement where APT was named the
trustee of the government’s share in PHISELCO.
Since PHISELCO at that time owed PNB, quasi-reorganization
occurred that raised the shareholdings of the national
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6.
7.
8.
9.
government to 97.41%, and the remaining 2.59%, to
Kawasaki.
​COP and APT decided to sell the national government’s
share to private entities ​in the interest of national economy
which ​converted Kawasaki’s right of refusal to right to top
the highest bidder by 5%​. Moreover, it was agreed that
Kawasaki is entitled to name a company ​(in which it was a
stockholder) that could exercise the right to top; PHI was
then named.
At the public bidding, JG Summit submitted a bid of P2.030
billion, by which it was declared as the highest bidder
subject to the right of Kawasaki/PHI to top by 5% as
specified in the bidding rules.
Later,​ JG Summit informed APT:
A. t​hat Kawasaki/ PHI violated the Asset Specific
Bidding Rules (ASBR) as Kawasaki/PHI was joined by
the losing bidders to raise P2.131 billion to top the
highest bidder (JG Summit), and
B. only Kawasaki could exercise the right to top. (Since
sabi sa JVA Kawasaki affiliate or Government lang)
Despite the protest, APT notified JG Summit that the exercise
of the option to top the highest bidder by PHI was approved
which merited the execution of Stock Purchase Agreement
between APT and PHI.
ISSUES:
1. W/N Kawasaki/PHI violated the ASBR when they were joined
by the losing bidders to top the highest bidder (JG Summit). NO
2. W/N JG Summit should have been granted the right to
purchase despite being the highest bidder. - NO.
1.
The right to top was exercised by PHI as the nominee of
KAWASAKI and the fact that PHI formed a consortium to
raise the required amount to exercise the right to top the
highest bid by 5% does not violate the JVA or the ASBR.
2. The fact that the losing bidder, Keppel Consortium (composed of
Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has
joined PHI in the latter's effort to raise P2.131 billion necessary in
exercising the right to top is not contrary to law, public policy
or public morals.
3. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its right to
top as it did), to raise the purchase price.
4. Further, we see no inherent illegality on PHI’s act in seeking
funding from parties who were losing bidders. This is a purely
commercial decision over which the State should not interfere
absent any legal infirmity. It is emphasized that the case at bar
involves the disposition of shares in a corporation which the
government sought to privatize. As such, the persons with whom
PHI desired to enter into business with in order to raise funds to
purchase the shares are basically its business.
2nd Issue:
5. In Jalandoni v Narra: ​The discretion to accept or reject a bid and
award contracts is vested in the Government agencies entrusted
with that function. The discretion given to the authorities on this
matter is of such wide latitude that the Courts will not interfere
therewith, unless it is apparent that it is used as a shield to a
fraudulent award.
6. In ​C&C Commercial Corp. v Menor: ​It is a well-settled rule that
where such reservation is made in an Invitation to Bid, the highest
or lowest bidder, as the case may be, is not entitled to an award as
a matter of right
RATIO:
1st Issue:
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7.
8.
9.
In ​A.C. Esguerra & Sons v. Aytona: ​Even the lowest Bid or any
Bid may be rejected or, in the exercise of sound discretion, the
award may be made to another than the lowest bidder.
Jurisprudence provides that the right to top was a condition
imposed by the government in the bidding rules which was
made known to all parties. It was a condition imposed on all
bidders equally, based on the APT's exercise of its discretion in
deciding on how best to privatize the government's shares in
PHILSECO.
It was not a whimsical or arbitrary condition plucked from the
ether and inserted in the bidding rules but a condition which the
APT approved as the best way the government could comply
with its contractual obligations to KAWASAKI under the JVA
and its mandate of getting the most advantageous deal for the
government.
NOTE:
No provision was cited in this case but i think Art. 1326 might be applicable
(relation to bidding). Still not sure how this case is applicable to our topic
right now so I’m really sorry !!
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PETITIONER​: Tanay Recreation Center and Development Corp.
RESPONDENTS​: Catalina Matienzo Fausto and Anunciacion Fausto
Pacunayen
SUMMARY​:
​Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is
the lessee of a 3,090-square meter property located inTanay, Rizal, owned
by Catalina Matienzo Fausto, under a Contract of Lease. On this property
stands the Tanay Coliseum Cockpit operated by TRCDC. The lease
contract provided for a 20-year term, subject to renewal within sixty days
prior to its expiration. The contract also provided that should Fausto
decide to sell the property, TRCDC shall have the “priority right” to
purchase the same.
30. Tanay Recreation v. Fausto (Cla)
April 12, 2005 | Austria-Martinez | Essential Requisites - Consent (Right of
first refusal)
On June 17, 1991, TRCDC wrote Fausto informing her of its intention to
renew the lease. However, it was Fausto’s daughter, respondent
Pacunayen, who replied, asking that petitioner remove the improvements
built, as she is now the absolute owner of the property. It appears that
Fausto had earlier sold the property to Pacunayen and title has already
been transferred in her name. Petitioner filed an Amended Complaint for
Annulment of Deed of Sale, Specific Performance with Damages, and
Injunction.
In her Answer, respondent claimed that petitioner is estopped from
assailing the validity of the deed of sale as the latter acknowledged her
ownership when it merely asked for a renewal of the lease. According to
respondent, when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the property, and it even
asked for grace period to vacate the premises.
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DOCTRINE:
When a lease contract contains a right of first refusal, the lessor is under
legal duty to the lessee not to sell to anybody at any price until after he has
made an offer to sell to the latter at a certain price and the lessee has failed
to accept it. The lessee has a right that the lessor’s first offer shall be in his
favor. Right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract.
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.
FACTS:
1. Petitioner Tanay Recreation Center and Development Corp.
(TRCDC) is the lessee of a 3,090-square meter property located in
Tanay Rizal owned by Catalina Matienzo Fausto under a Contract
of Lease executed on August 1, 1971.
2. On this property stands the Tanay Coliseum Cockpit operated by
TRCDC.
3. The lease contract provided for (1) a 20-year term, subject to
renewal within 60 days prior to its expiration and (2) should
Fausto decide to sell the property, TRCDC shall have the “priority
right” to purchase the same.
4. On June 17, 1991, TRCDC wrote to Fausto informing her of its
intention to renew the lease.
5. Respondent Pacunayen, daughter of Fausto, replied asking that
TRCDC remove the improvements built, as she is now the absolute
owner of the property. (Fausto sold the property to Pacunayen for
P10,000 under “Kasulatan ng Bilihan Patuluyan ng Lupa” on Aug.
8, 1990 and title has already been transferred in her name)
6.
7.
8.
9.
On September 4, 1991, TRCDC filed an ​Amended Complaint for
Annulment of Deed of Sale, Specific Performance with Damages,
and Injunction​.
In her answer, Pacunayen claimed that TRCDC is estopped from
assailing the validity of the deed of sale as the latter acknowledged
her ownership when it merely asked for a renewal of the lease.
According to Pacunayen, when they met to discuss the matter,
TRCDC did not demand for the exercise of its option to purchase
the property, and it even asked for a grace period to vacate the
premises.
RTC: extended period of the lease for another 7 years, P10,000
monthly, TRCDC’s claim for damages dismissed.
CA: (1) TRCDC vacate the leased premises immediately (2) allow
Pacunayen to withdraw 320,00 deposited (3) order TRCDC to
make the necessary accounting regarding the amount deposited and
pay remaining balance to Pacunayen (4) order TRCDC to pay 10k
monthly rental
a. CA acknowledged the priority right of TRCDC to
purchase the property in question. CA interpreted such
right to mean that it shall be applicable only in case the
property is sold to strangers and not to Fausto’s relative
ISSUE: W/N CA committed serious reversible error in holding that the
contractual stipulation giving the petitioner the priority right to
purchase the leased premises shall only apply if the lessor decides to sell
the same to strangers
RATIO:
1. When a lease contract contains a right of first refusal, the lessor is
under legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price
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2.
3.
4.
5.
6.
7.
8.
and the lessee has failed to accept it. The lessee has a right that the
lessor;s first offer shall be in his favor. It is an integral and
indivisible part of the contract of lease and is inseparable from the
whole contract.
In this case, it was erroneous for the CA to rule that the right of
first refusal does not apply when the property is sold to Fausto’s
relative.
Stipulation means that should Fausto decide to sell the leased
property during the term of the lease, such sale should be first
offered to the petitioner.
The stipulation does not provide for the qualification that such
right may be exercised only when the sale is made to strangers or
persons other than Fausto’s kin.
Thus, Fausto has has the legal duty to TRCDC not to sell the
property to anybody, even her relatives, until after she has made an
offer to sell to TRCDC and the offer was rejected by the petitioner.
It was also incorrect for CA to rule that it would be useless to
annul the sale between Fausto and Pacunayen because the property
would still remain with Pacunayen after the death of the mother by
virtue of succession.
Fausto is bound by the terms and conditions of the lease contract:
she was obligated to offer the property first to petitioner before
selling it to anybody else. When she sold the property to
Pacunayen without offering it to TRCDC, the sale while valid is
rescissible so that TRCDC may exercise its option under the
contract
With the death of Fausto, whatever rights and obligations she had
over the property including her obligation under the lease contract,
were transmitted to her heirs by way of succession. (Art. 13116)
​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.
6
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31. Dilag v. IAC (Charlie)
July 30, 1987| Paras, J. | Essential requisites of contracts - Consent
(Simulated sale)
DOCTRINE: ​A transaction is considered simulated when it is executed in
fraud of creditors. Said contract, being fictitious, is inexistent, and an
inexistent contract cannot give life to anything at all.
PETITIONER​: Benito Dilag, Susette Dilag, Sussie Dilag, and Susan
Dilag
RESPONDENTS​: Intermediate Appellate Court and Marciano Arellano
In this case, the supposed 1974 Deed of Sale executed by the parents in
favor of their children was a simulated sale as there was no legitimate
transaction involved. They even secured a new Deed of Sale in 1981 to
secure the cancellation of the title, so they knew that the 1974 one was
illegal; and all of this was done to defraud Arellano, therefore it should be
considered void.
SUMMARY​: Spouses Pablo and Socorro Dilag and Marciano Arellano
were parties to a civil case in 1968, and trial court ruled in favor of
Arellano. The court issued a writ of execution in 1979 upon two lots
belonging to the Dilag spouses. The lots were sold at public auction with
Arellano being the highest bidder in 1981. After the spouses had failed to
exercise their right of redemption, the Arellano claimed ownership of the
property.
Apparently however, there was an Adverse Claim inscribed on the title,
which showed that the parents had executed a Deed of Sale in 1974 in
favor of the children. The property was also the subject of another deed of
sale among the Dilags in 1981. The children wanted to claim the lands
from Arellano saying that the levy on execution issued back in 1979 was
illegal since their parents were no longer the owners of the property. The
IAC ruled that the 1974 Deed of Sale was a simulated sale; the court
considered that there was a valid contract of lease between Sps. Dilag and
and their lessee which proved their ownership, among other reasons.
(Basically there were two deeds of sale on the same property, but the first
one was kind of sketchy idk)
The issue is whether the Dilag children are the owners of the two lots by
virtue of the deeds of sale inscribed in the title of their parents’ property.
The Court upheld the decision of the IAC, saying that the Deed of Sale
dated 1974 was fictitious (a simulated sale) because it was executed in
fraud of the creditors.
FACTS:
1. Marciano Arellano’s son Herminio Arellano got into a vehicular
accident on July 1, 1968 involving a truck belonging to spouses
Pablo and Socorro Dilag. Arellano filed with the trial court an
action for quasi-delict and was awarded P14,500+ to be paid by
Sps. Dilag. The trial court issued a writ of execution on February
16, 1979.
2. On March 29, 1979, Sps. Dilag filed a petition for relief from
judgment with the SC praying the decision in the quasi-delict case
be set aside. They presented a compromise agreement but SC
disapproved it because Sps. Dilag failed to sign it, although
Arellano alleged that the spouses made a partial payment of
P9,000. The case was dismissed.
3. Pursuant to the Writ of Execution, a Notice of Levy on Execution
was annotated on the TCT covering a 212,513 sqm parcel of land
in Dumangas, Iloilo (Lot No. 288) belonging to Sps. Dilag. But
inscribed in the TCT was an Adverse Claim dated March 11, 1974
which was filed by the Dilag children (Suzette, Benito, Sussie, &
Susan). This claim was filed to protect the children’s rights and
interests as vendees, as evidenced by a Deed of Absolute Sale that
their parents executed in their favor. The adverse claim further
stated that the Development Bank of the Philippines was in
possession of the the owner’s duplicate certificate to which the
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4.
5.
6.
7.
8.
property had earlier been mortgaged. It also showed a Contract of
Lease executed between Sps. Dilag in favor of David and Erlinda
Diacin as lessees of the property.
On August 26, 1981, the Dilag spouses’ two lots— Lot 288 and
Lot 1927– were sold at public auction and Arellano was the
highest bidder at P35,520. The Certificate of Sale was then
inscribed in the TCT subject to the right of redemption. However,
there was another inscription bearing a Deed of Absolute Sale also
dated August 26, 1981 executed by Sps. Dilag, in favor of their
children of Lot 288 for the sum of P30,000.00. The TCT was
cancelled and a new one was issued in the name of the Dilag
children on August 14, 1981.
On August 30, 1982, after Sps. Dilag failed to exercise their right
of redemption, a Definite Deed of Sale over Lot 288 was executed
by the Provincial Sheriff in favor of Arellano. A writ of possession
was issued, and the lots were delivered to Arellano.
On December 24, 1982, Arellano sold Lot No. 288 to Marcelino
Florete Jr. and Leon Coo for P150,000.00. David Diancin, the
actual lessee of the property, executed a deed giving up his claim
or interest as a lessee over the property in favor of Arellano in
consideration of P38,000, as payment for his fish fry placed in the
fishpond in the lot. Diancin informed the Dilag children that he had
nothing to do anymore with the fishpond or lot in question because
he had assigned whatever right he had thereon.
On July 7, 1983, Sussie Dilag in behalf of her siblings, executed a
Notarial Rescission effective July 2, 1983 of the Lease Contract
dated July 7, 1974 entered into by Diancin and Sps. Dilag.
Subsequently, they filed a case for the annulment of decision in
first case, alleging that the levy on execution on the TCT was
illegal since it was made on property no longer owned by their
parents.
The court issued a restraining order against Arellano and his agents
from wresting possession over the lots and disturbing the
possession of the Dilag children. Eventually Arellano brought this
case up to the Intermediate Appellate Court.
9. The IAC sided with Arellano on his contention that the conveyance
relied upon by the Dilag children in giving them title to the
property is a ​simulated sale between them and their parents (the
former owners of Lot No. 288) on November 21, 1973. The IAC
considered the following circumstances: 1) in 1979, years after the
alleged sale in 1973, a contract of lease over the lot in question
was executed by the Sps. Dilag in favor of David Diancin​, clearly
an act akin to ownership of the Dilag spouses; 2) in 1981, the same
property was again the subject of a deed of sale from Sps. Dilag in
favor of their children for an ​insufficient consideration or value of
P30,000.00 for an area of 21 hectares when said land was
mortgaged to DBP on June 6, 1973 for P86,300.00; 3) on July 7,
1983, Sussie Dilag purportedly in behalf of the other Dilag
children executed a ​notarial rescission of the lease contract
entered into between the Dilag spouses and Diancin in 1979, an
indication that ​there was a valid contract of lease entered into in
1979 by the legal owners, Sps. Dilag with David Diancin, and 4) in
1983 the leasehold right was waived by David Diancin the lessee,
in favor of Marciano Arellano in consideration of P38,000.00 and
Arellano, in turn, sold the property to Marcelino Florete for
P150,000.00.
10. The IAC ruled that the deed of sale was simulated since it was
executed in fraud of creditors having been entered into during the
pendency of the first civil case. Said contract, being fictitious,
according to IAC, is inexistent and necessarily the adverse claim of
the Dilag children is likewise a nullity because an inexistent
contract cannot give life to anything at all.
ISSUE:
W/N the Dilag children were the owners of the two lots at the time of the
levy on execution (NO)
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W/N the 1974 Deed of Sale between the parents and children was a
simulated sale (YES)
RATIO:
1. It is not disputed that at the time of the levy on execution in the
very first civil case, the Dilag spouses were still the
registered/declared owners of Lot 288 and Lot 1927. On the other
hand, the title in the name of the Dilag children was issued on
August 14, 1981, several days ahead of the deed of sale, dated
August 26, 1981 on which the new title in the name of the Dilag
children was based, and inscribed on August 27, 1981. Clearly ​the
Deed of Absolute Sale in favor of the Dilags executed in 1974 ​was
a simulated and fictitious transaction to defraud Arellano who
obtained a money judgment against Sps. Dilag. In securing the
cancellation of the TCT covering Lot No. 288 in the names of
Pablo and Socorro Dilag, the children had to rely on another deed
of absolute sale supposedly executed by their parents in their favor
in 1981, instead of relying on the first deed of sale executed in
1974, an indication that Dilag children do not consider the 1974
deed of sale valid and legal.
2. The supposed sellers— the Dilag spouses— who sold the lot in
question to their children for an insufficient consideration,
continued exercising acts of ownership over Lot No. 288 by
leasing it to Diancin and turning over material possession to him as
lessee. In fact, when the deed of sale in favor of Arellano was
executed, by virtue of the failure of Sps. Dilag to redeem the
property within the period prescribed by law (i.e. the 1-year
redemption period), the actual possessor was Diancin. Diancin
however recognized Arellano's right of ownership when he was
notified of the delivery of possession to Arellano by the Provincial
Sheriff, as evidenced by a signed delivery receipt. Diancin stopped
performing acts of cultivation on the fishpond situated in the lot
and just asked for an extension while he would look for a new
place to stay. Subsequently, Arellano sold the lot to Marcelino
3.
4.
5.
Florete and Leon Coo. When Diancin was paid the value of the
fish fry he placed in the fishpond, he executed a Discharge and
Release Claim in favor of Florete, one of the vendees.
When the Dilag children filed their case against Arellano, they
were not in possession of the property. There was therefore no
factual and legal basis for the restraining order of the lower court
ordering Arellano and/or his agents to desist from entering Lot No.
288.
Also, in securing the cancellation of the TCT covering Lot No. 288
in the names of Sps. Dilag, the Dilag children had to rely on
another deed of absolute sale supposedly executed by their parents
in their favor in 1981, instead of relying on the first deed of sale
executed in 1974, an indication ​that the Dilags do not really
consider the 1974 deed of sale valid and legal​. The records of the
case do not support the Dilag children’s contention that the
obligation of Sps. Dilag was already extinguished when Arellano
acknowledged the receipt of payment of the money judgment, by
virtue of their own admission in Civil Case No. 12832 that
payment was only partial and did not cover the whole amount of
the money judgment in Civil Case No. 8714.
The compromise agreement in the earlier civil case was denied by
the trial court and it became final and executory because no appeal
was taken by their predecessors-in-interest. Furthermore, even
assuming that the Dilag children became the valid and legal
owners of the lot by virtue of the deed of sale executed in their
favor in 1981, they nonetheless failed to avail themselves of their
right as registered owners to redeem the property from the
Arellano (buyer in the sale by public auction) within the period
provided for by law.
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32. Robleza v. CA (Yen)
June 28, 1989 | Regalado, ​J.​ | Essential Requisite of Contracts: Consent Cause of Contract / Simulation of Contract / Rescission
PETITIONER​: Julita and Jesus Robleza
RESPONDENTS​: Court of Appeals (5th Division) and Inter-Island Fishing
Gear & Equipment, Inc.
SUMMARY​:
Jesus and Julita Robleza sold two lots to Elpidio and Marianne Tan for 10K. The
real price of the lots in total was 100K, which means that the full purchase price
has not been paid.
Despite his non-payment, Elpidio Tan transferred the titles of the lands in his
name. He also mortgaged the lands in favor of Inter-Island. Roblezas demanded
the return of the titles of their lands. Inter-Island asked for other collateral and
Php50K.
Tans couldn’t pay Inter-Island so the latter foreclosed the subject property.
Roblezas want to cancel the deed of sale in favor of Tans, and to cancel the
mortgage between Inter-Island and Tans.
SC ruled that the Roblezas were entitled to rescission of contract because of
non-payment by Tan. Although there was simulation of contract, the real
agreement between the parties is controlling.
SC also ruled that Roblezas never lost possession of the lots. Inter-Island was
aware that their claim to the lots was illegal, as can be seen by its silence and
passivity.
DOCTRINE:
Basic rule: if a contract has no cause = contract has no effect, it is void.
→ There should be TOTAL ABSENCE of cause or consideration
If parties are bound by a contract BUT the contract did not reflect the true price
of the property = the contract is still valid
→ This is called a partial simulation of contract
→ It is important to note that the parties are bound by their real
agreement (the true price)
The fact of non-payment is not the controlling criterion to declare a contract
void.
→ Non-payment results in a breach which gives rise to rescission of specific
performance (Art. 1191)
FACTS:
1. Julita and Jesus Robleza sold ​two lots located in General Santos
City to Elpidio and Marianne Tan. Both lots were covered by
Transfer Certificates of Title.
2. Roblezas execute a ​deed of absolute sale in favor of Tans,
supposedly for ​Php 10K.
3. It was said that Roblezas and Tans have known each other for forty
years. Elpidio Tan is the godson of petitioners. His mother was a
classmate of Julita.
4. Elpidio Tan received the titles for the lots. He was able to get two
new titles in his name​. He ​mortgaged the lots in favor of
Inter-Island Fishing to secure payment of a promissory note in the
amount of Php 228,362.10.
5. Roblezas say that they never received any money from Tans. They
say that the Php10K was not the real price. The real price was Php
94,000 (evidenced by two checks; one for 50k + 44k = both were
dishonored). Elpidio ​Tan failed to make good of his promise ​to
pay.
6. Roblezas demanded the return of the titles. Tan admitted that he
transferred the titles in his name and that the lands were
mortgaged. The general manager of of Inter-Island confirmed this.
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Inter-Island refused to return the titles BUT was willing to accept
other collaterals + Tan should make partial payment of Php50K.
7. Tan tried to sell one of the lands to a certain Jong See, for the price
of Php50K (para mabayaran yung Inter-Island). Robleza was a
witness to this transaction. The transaction failed because Jong See
wanted to have the title delivered to him first.
8. Tans failed to pay Inter-Island. The ​lands were foreclosed and
sold at public auction. Inter-Island won the auction. New titles for
the lands were issued in the name of Inter-Island.
9. Roblezas filed for ​cancellation of deed of sale (to Tans) and
cancellation of transfer certificates ​issued to Inter-Island.
Roblezas claim that the Tans and Inter-Island never took
possession of the lands. They also claim that Inter-Island acted in
bad faith.
10. RTC ruling:
a. Roblezas are the absolute and registered owners of the
lands.
b. Deed of sale in favor of Tans is null and void.
c. Foreclosure proceedings by Inter-Island is null and void.
d. Titles in the name of Inter-Island are cancelled.
11. CA reversed.
3.
4.
5.
6.
ISSUES:
1. WoN Roblezas lost possession of the two lands? No.
RATIO:
1.
2.
Basic rule: if a contract has ​no cause = contract has no effect, it is
void.
a. There should be TOTAL ABSENCE of cause or
consideration
If for example, parties agree on a price. One party failed to pay the
said price. The contract can still be supported by some other
7.
consideration. The ​fact of non-payment is not the controlling
criterion to declare a contract void.
a. Non-payment results in a breach which gives rise to
rescission of specific performance (Art. 1191)
If parties are bound by a contract BUT the contract did not reflect
the true price of the property →​ the contract is still valid
a. This is called a partial simulation of contract
b. It is important to note that the p​arties are bound by their
real agreement​ (the true price)
In the case, Roblezas admit that the real price of the lots is
Php100k in total (Php50K each). But Roblezas owed Tan’s mother
Php6K, this amount was deducted from the price (see facts no. 5).
There was a partial payment made on the absolute sale so an action
for declaration of nullity will not prosper.
However, ​Roblezas may still rescind the obligations.
The deed of sale (to Tan) should be considered a relatively
simulated contract.
a. Under Article 1946 of the CC, parties should be bound by
their real agreement.
i.
In this case, it is the Php94K as evidenced by the
two checks.
b. The ​pari delicto rule will not apply. If the concealed
contract is lawful, it is enforceable when all the essential
requisites are present and simulation was only on the
contents or terms.
i.
Supposedly pari delicto daw
1. Roblezas: agreeing that a different price
would be stated in the deed of sale
2. Tans: registering the titles without
paying the full price
3. *again, this does not apply*
Tan admitted that ​he did not pay the purchase price​. He failed to
comply with his obligations and his checks were dishonored.
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Significantly, ​Tan’s admission of non-payment, and the legal
effects, are binding upon Inter-Island.
a. Rules of Court: “Where one derives title to property from
another, the act, declaration, or omission of the latter,
while holding the title, in relation to the property, is
evidence against the former.”
8. There are ​several indicators of bad faith from Inter-Island in
foreclosing the properties, which lead to the Roblezas being
prejudiced
a. Inter-Island’s lawyer visited the land in General Santos
for the purpose of fencing the property. He was denied
access and was informed of Tans’ non-payment.
b. Inter-Island’s manager was informed by Robleza
regarding the fraud committed by the Tans.
c. If Inter-Island believed that it had rights over the property,
it should have initiated the proper legal remedies. Its
silence may be deemed that it recognized the petitioners’
ownership of the lands.
d. Inter-Island agreed to return the titles to petitioners if
partial payment in the amount of Php50K was made (see
fact no. 6). This agreement is a recognition of the
Robleza’s superior right of ownership.
9. On the Roblezas’ alleged negligence in giving title to Tans before
full payment
a. Both parties were close, having known each other for 40
years.
b. “Our jurisprudence is replete with instances where trust
has been repaid with betrayal, due to misplaced
confidence born of fraternal or personal intimacy, and
despite the victim’s experience and circumspection.” :(
10. Conclusion:
a. Deed of sale should be rescinded. There was non-payment
of the real purchase price.
b. Roblezas’ possession of the land was never disturbed.
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Essential Requisites of Contracts: Cause of
Contracts (Art 1350 to 1355)
1. Villamor v. Court of Appeals (JEN)
October 10, 1991 | J. Medialdea | Cause of Contracts
PETITIONERS : SPOUSES JULIO AND MARINA VILLAMOR
RESPONDENTS: CA, SPOUSES MACARIA AND ROBERTO
REYES
SUMMARY:
Macaria Reyes sold a portion of 300 sq. meter to Spouses Villamor for
21k. Macaria executed a “Deed of option” in favor of Villamor in which
the remaining 300 sq. meter portion of the lot would be sold to Villamor
under the conditions that the only reason Spouses Villamor agreed to buy
the ½ portion at the above-stated price of 70 per sq. meter is because
Reyes agreed to sell the remaining ½ portion of the land. Macaria offered
to repurchase the lot sold by them to Villamor but VIllamor refused and
reminded them that the Deed of Option gave them the option to purchase
the remaining portion of the lot. The ​cause or the impelling reason ​on
the part of private respondent in executing the deed of option as
appearing in the deed itself is the petitioners' having agreed to buy the
300 square meter portion of private respondents' land at P70.00 per
square meter "which was greatly higher than the actual reasonable
prevailing price." Thus, expressed in terms of money, the consideration
for the deed of option is the difference between the purchase price of the
300 square meter portion of the lot in 1971 (P70.00 per sq. m.) and the
prevailing reasonable price of the same lot in 1971.
DOCTRINE:
consideration is "the why of the contracts, the essential reason which
moves the contracting parties to enter into the contract."
FACTS:
1. Macaria Reyes is the owner of 600 sq. meter lot in Caloocan. She
sold a portion of 300 sq. meter to Spouses Villamor for 21k.
2. Macaria executed a “Deed of option” in favor of Villamor in which
the remaining 300 sq. meter portion of the lot would be sold to
Villamor under the conditions stated:
a. "That the only reason why the Spouses-vendees Julio
Villamor and Marina V. Villamor, agreed to buy the said
one-half portion at the above-stated price of about P70.00
per square meter, is because I, and my husband Roberto
Reyes, have agreed to sell and convey to them the
remaining one-half portion still owned by me and now
covered by TCT No. 39935 of the Register of Deeds for
the City of Caloocan, whenever the need of such sale
arises, either on our part or on the part of the spouses
(Julio) Villamor and Marina V. Villamor, at the same
price of P70.00 per square meter, excluding whatever
improvement may be found thereon
Macaria, when her husband, Roberto Reyes, retired in 1984, they
offered to repurchase the lot sold by them to the Villamor spouses
but Marina Villamor refused and reminded them instead that the
Deed of Option in fact gave them the option to purchase the
remaining portion of the lot.
3. Villamors, on the other hand, claimed that they had expressed their
desire to purchase the remaining 300 square meter portion of the
lot but the Reyeses had been ignoring them. They filed a complaint
for specific performance.
4. RTC: ruled in favor Villamor
CA: reverse the decision and dismissed the complaint.
ISSUE:
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W/N the consideration in this case is difference between the purchase price
of the 300 square meter portion of the lot in 1971 (P70.00 per sq. m.) and
the prevailing reasonable price of the same lot in 1971. - YES
RATIO:
1. Gonzales v. Trinidad: ​consideration is "the why of the contracts,
the essential reason which moves the contracting parties to enter
into the contract."
2. The ​cause or the impelling reason ​on the part of private
respondent in executing the deed of option as appearing in the deed
itself is the petitioners' having agreed to buy the 300 square meter
portion of private respondents' land at P70.00 per square meter
"which was greatly higher than the actual reasonable prevailing
price."
3. The respondent appellate court failed to give due consideration to
petitioners' evidence which shows that in 1969 the Villamor
spouses bought an adjacent lot from the brother of Macaria
Labing-isa for only P18.00 per square meter which the private
respondents did not rebut.
4. Thus, expressed in terms of money, the consideration for the deed
of option is the difference between the purchase price of the 300
square meter portion of the lot in 1971 (P70.00 per sq. m.) and the
prevailing reasonable price of the same lot in 1971.
5.
6.
Whatever it is, (P25.00 or P18.00) though not specifically stated in
the deed of option, was ascertainable. Petitioners' allegedly paying
P52.00 per square meter for the option may, as opined by the
appellate court, be improbable but improbabilities does not
invalidate a contract freely entered into by the parties
The ​deed of option entered into by the parties in this case had
unique features. Ordinarily, an optional contract is a privilege
existing in one person, for which he had paid a consideration and
which gives him the right to buy, for example, certain merchandise
or certain specified property, from another person, if he chooses, at
any time within the agreed period at a fixed price.
7.
If We look closely at the "deed of option" signed by the parties,
We will notice that the first part covered the statement on the sale
of the 300 square meter portion of the lot to Spouses Villamor at
the price of P70.00 per square meter 'which was higher than the
actual reasonable prevailing value of the lands in that place at that
time (of sale)."
8. The second part stated that the only reason why the Villamor
spouses agreed to buy the said lot at a much higher price is because
the vendor (Reyes) also agreed to sell to the Villamors the other
half-portion of 300 square meters of the land.
9. ut, the "deed of option" went on and stated that the sale of the other
half would be made "whenever the need of such sale arises, either
on our (Reyes) part or on the part of the Spouses Julio Villamor
and Marina V. Villamor. It appears that while the option to buy
was granted to the Villamors, the Reyes were likewise granted an
option to sell. In other words, it was not only the Villamors who
were granted an option to buy for which they paid a consideration.
The Reyes as well were granted an option to sell should the need
for such sale on their part arise.
10. the option offered by private respondents had been accepted by the
petitioner, the promises, in the same document. The acceptance of
an offer to sell for a price certain created a bilateral contract to sell
and buy and upon acceptance, the offeree, ipso facto assumes
obligations of a vendee. Demandability may be exercised at any
time after the execution of the deed.
11. the Deed of Option did not provide for the period within which the
parties may demand the performance of their respective
undertakings in the instrument. The parties could not have
contemplated that the delivery of the property and the payment
thereof could be made indefinitely and render uncertain the status
of the land. The failure of either parties to demand performance of
the obligation of the other for an unreasonable length of time
renders the contract ineffective.
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12. The complaint in this case was filed by the petitioners on July 13,
1987, ​seventeen (17) years from the time of the execution of the
contract. Hence, the right of action had prescribed.
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2. Olegario v. CA (Feli)
November 14, 1994 | J. Puno | Cause of Contracts - Unlawful Motive and
Cause
PETITIONER​: Bonifacio Olegario and Adelaida Victorino
RESPONDENTS​: CA, Manuel Rivera, Paz Olegario, and Socorro
Olegario-Teves
SUMMARY​: Manuel and Aurelia Olegario own a 91-sq. meter lot in
Caloocan City. They did not have any children, but they raised respondents
Manuel Rivera, Paz Olegario, and Socorro Olegario-Teves. When Aurelia
died, Marciliano, to prevent her heirs from inherting and to avoid the
payment of taxes, executed a Deed of Absolute Sale to Manuel, Paz, and
Socorro. After Marciliano died, petitioners Bonifacio and Adelaida, who
became the sole heirs of the spouses, executed a deed of Extra-judicial
Settlement over the lot and a new TCT was issued in their names. They then
sold the lot to Elena Adaon and Nestor Tejon. Manuel, Paz, and Socorro filed
a civil case for the annulment of the Settlement. Likewise, Bonifacio and
Adelaida assailed the Deed of Absolute Sale between Marciliano and the
respondents. The trial court ruled in favor of Manuel, Paz, and Socorro and
annulled the Extra-judicial Settlement, which was affirmed by the CA.
The SC reversed the CA decision, ruling that Bonifacio and Adelaida were
the lawful heirs of the Olegario spouses. They also ruled that since
Marciliano’s motive in selling the land to Manuel, Paz and Socorro was to
frustrate Bonifacio and Adelaida’s inheritance and to avoid paying estate tax,
the motive for the contract is unlawful, and therefore the contract is null and
void. Finally, they ruled that the respondents did not have a valid cause
because they did not actually have P50,000 and paid the same to Marciliano,
since they had to borrow P30,000 to prove their financial capacity.
DOCTRINE:
Art 1352: Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals, good
customs, public order, or public policy.
Motive may be regarded as the consideration when it predetermines the
purpose of the contract (​When the motive is unlawful, the contract is null and
void)
FACTS:
1. Marciliano Olegario and Aurelia Rivera-Olegario own a parcel of
land measuring 91 square meters in Caloocan City. The couple was
childless but raised Manuel Rivera, Paz Olegario, and Socorro
Olegario-Teves (petitioner Bonifacio is the brother of Marciliano,
while petitioner Adelaida is the niece of Aurelia)
2. When Aurelia died, Marciliano, to prevent her heirs from
inheriting and to avoid payment of taxes, executed a Deed of
Absolute Sale of the property in favor of Manuel, Paz, and Socorro
for P50,000. The contract was not registered.
3. After Marciliano died, Bonifacio and Adelaida became the sole
heirs of the Olegario spouses. They executed a Deed of
Extra-judicial Settlement of Estate over the lot. The Settlement was
recorded in the Register of Deeds of Caloocan City and a new TCT
was issued in their names.
4. Bonifacio and Adelaida sold the lot on August 1 for P200,000 to
Elena Adaon and Nestor Tejon. A new TCT was issued in the
vendee’s names.
5. Manuel, Paz, and Socorro alleged that the Settlement came only to
their knowledge on August 21. They tried to register the contract
of sale on that day, three years from its execution (the deed of sale
was made in 1986, and they tried to register it in 1989). The
registration, however, was denied because the property had already
been transferred to Elena and Nestor.
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6.
7.
8.
Manuel, Paz, and Socorro filed a civil case for the annulment of
the Extra-judicial Settlement and damages. Bonifacio and Adelaida
assailed the Deed of Absolute Sale between Marciliano and
Manuel, Paz, and Socorro. Elena and Nestor, on the other hand,
maintained they were buyers in good faith.
The trial court ruled in favor of Manuel, Paz, and Socorro, and
annulled the Extra-judicial Settlement and the sale of the lot to
Elena and Nestor.
The CA affirmed the decision, but ordered that the register of
deeds issue a title to Manuel, Paz, and Socorro corresponding to ¾
of the disputed lot and that Bonifacio and Adelaida are ordered
only to pay P10,000 in damages.
ISSUES:
1. WON the Deed of Absolute Sale between Marciliano and
respondents is null and void? - YES
2. WON the CA erred in sustaining the efficacy of the Deed of
Absolute Sale over the Extra-judicial Settlement? - YES
RATIO: ​PETITION GRANTED
1.
2.
Bonifacio and Adelaida are the lawful heirs of the spouses
Olegario.
a. The lot is conjugal property (CC Art. 160), and the death
of Aurelia dissolved the conjugal partnership.
b. Because of the dissolution, ½ of the property goes to
Marciliano for his share of the estate plus ¼ for his share
as the suriving spouse.
c. Adelaida, as Aurelia’s suriving neice, is entitled to the
other ¼ of the lot. Bonifacio took Marciliano’s share
when he died.
In a contract of sale, consideration is different from motive.
a.
b.
Consideration - right, interest, benefit, or advantage
conferred upon the promissor, to which he is otherwise
not lawfully entitled, or any detriment, prejudice, loss, or
disadvantage suffered or undertaken by the promisee
other than to such as he is as the time of consent bound to
suffer
Motive - condition of the mind which incites to action;
includes also the inference as to the existence of such
condition (from an external fact of a nature to produce
such a condition)
3. Motive may be regarded as the consideration when it
predetermines the purpose of the contract
a. When the motive is unlawful, the contract is null and void
4. The primary motive of Marciliano in selling the lot to Manuel, Paz,
and Socorro was to ​frustrate Bonifacio and Adelaida’s right of
inheritance and to avoid payment of estate tax.
a. Manuel, Paz, and Socorro did not refute the charge that
the sale was fictitious
5. Therefore, the sale of the lot is ​NULL AND VOID ​because ​illegal
motive predetermined the purpose of the contract.
6. The trial court and CA also failed to consider the lack of cause in the
deed of sale.
a. The evidence does not show that Manuel, Paz, and Socorro had
P50,000 and paid this to Marciliano
b. They allegedly borrowed P30,000 from the Mary Help of Christian
Parish to prove their financial capacity.
7. Because there is not valid cause, the deed of sale is void (applying Art.
1352)
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a.
b.
Art 1352: Contracts without cause, or with unlawful cause,
produce no effect whatever. The cause is unlawful if it is contrary
to law, morals, good customs, public order, or public policy.
[FOR REFERENCE] Art. 1350: In onerous contracts, the cause is
understood to be, for each contracting party, the prestation or
promise of a thing or service by the other; in remuneratory ones,
the service or benefit which is remuneratedl and in contracts of
pure beneficence, the mere liberality of the benefactor
8. [OTHER ISSUES] Even if the contract of sale is valid, it cannot
prejudice Bonifacio and Adelaida and third persons (Elena Adaon and
Nestor Tejon) since the deed was not registered.
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3. Lagunzad v. Gonzales (LEX)
August 6, 1979 | Melencio-Herrera,J. | Cause of Contracts- Contract
without cause
PETITIONER​: Manuel Lagunzad
RESPONDENTS​: Maria Soto Vda. De Gonzales and the Court of Appeals
SUMMARY​:
Lagunzad produced the movie entitled, “The Moises Padilla Story.” It is based
on a book of Atty. Rodriguez, Jr., entitled, “The Long Dark Night in Negros.”
The book portrays events in the life of Padilla, a mayoralty candidate of the
Municipality in Neg. Occ., who was murdered when he refused to withdraw his
candidacy. The movie emphasized on the public life of Moises Padilla but there
were portions that showed his family life including portrayal of Padilla’s mother,
Maria Soto Vda. de Gonzales (respondent). Gonzales’s daughters objected to
many portions of the movie, on behalf of their mother. They demanded in
writing for certain changes, corrections and deletions in the movie.
Their private dispute led them to execute a “Licensing Agreement” which grants
Lagunzad the permission and authority to exploit, use and develop the story of
Padilla under the following Conditions: 1) P20,000 payment; 2) Royalty
corresponding 2 ½% of all gross income or reciept derived from rentals and
percentage of box office receipts from exhibitors. Lagunzad claims that he was
pressured into signing the Agreement and paid Gonzales P5,000 otherwise, the
Gonzales would “call a press conference declaring the whole movie as fake,
fraud and Gonzales would go to Court to stop the movie. The filming of the
movie was completed and was shown in different theatres all over the country.
Lagunzad refused to pay any additional amounts pursuant to the Agreement
thus, Gonzales filed as suit against Lagunzad.
Lagunzad contends that the life of Padilla depicted in the movie were matters of
public knowledge and that Padilla was a public figure. He further claims that the
Licensing Agreement was without valid cause or consideration. ​The SC held
that the Licensing Agreement has the force of law between the contracting
parties and ​does not agree with petitioner’s submission that the Licensing
Agreement is null and void for lack of, or for having an illegal cause or
consideration. ​Absence of cause means that there is a total lack of any valid
consideration for the contract, in this case, while it is true that petitioner had
purchased the rights to the book that did not dispense with the need for prior
consent and authority from the deceased heirs to portray publicly episodes in
said deceased's life and in that of his mother and the members of his family. As
held in Schuyler v. Curtis, "a privilege may be given the surviving relatives of a
deceased person to protect his memory, but the privilege exists for the benefit of
the living, to protect their feelings and to prevent a violation of their own rights
in the character and memory of the deceased."
DOCTRINE:
Article 1352.
Contracts without cause, or with unlawful cause, produce no effect
whatsoever. ​The cause is unlawful if it is contrary to law, morals, good customs,
public order or public policy.
FACTS:
1. Manuel Lagunzad (petitioner), a newspaperman, owned “MML
Productions” and produced the movie entitled, “The Moises
Padilla Story.”
2. It is based on a copyrighted but unpublished book of Atty. Ernesto
Rodriguez, Jr., entitled, “The Long Dark Night in Negros”
subtitled “The Moises Padilla Story”
3. Lagunzad purchased the rights from Atty. Rodriguez Jr. for
P2,000.
4. The book portrays Moises Padilla as ‘martyr in contemporary
political history’. Padilla was then a mayoralty candidate of the
Nacionalista Party for the Municipality of Magallon, Neg. Occ.
when he was murdered.
5. The movie emphasized on the public life of Moises Padilla but
there were portions which dealt with his private and family life
including portrayal in some scenes of Padilla’s mother, Maria Soto
Vda. de Gonzales (respondent) and “Auring”, Padilla’s girlfriend.
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6.
7.
8.
9.
Mrs. Amante and Mrs. Gavieres, half-sisters of Moises Padilla
objected to many portions of the movie, on behalf of their mother.
They demanded in writing for certain changes, corrections and
deletions in the movie.
Lagunzad contends that he had already heavily invested in the
production of the movie and that he had a target date for premiere.
Because of the dispute, Lagunzad, Gonzales (represented by her
daughters) and Atty. Rodriguez, executed a “Licensing
Agreement” in Manila on October 05, 1961.
The Licensing Agreement provides:
a. Licensee- Lagunzad
b. Lincesor- Maria Soto Vda. Gonzales, legitimate mother
and only surviving compulsory heir of Moises Padilla
c. Licensor grants authority and permission to Licensee to
exploit, use and develop the story of Moises Padilla with
the following Conditions:
i.
Licensee shall pay licensor the ff:
1. P20,000 Ph currency without need of
further demand
2. Royalty corresponding 2 ½% of all
gross income or reciept derived from
rentals and percentage of box office
receipts from exhibitors
ii.
The Licensee agrees to keep accounts, contracts
and vouchers relating to the exploitation,
distribution and exhibition of the movie. And to
give access to the Licensor/ her accredited
representatives, full access.
iii.
The Licensee shall furnish the Licensor monthly
statement in duplicate, showing in details the
gross receipts.
iv.
The Licensee shall pay the corresponding
royalties due to the Licensor
10. Lagunzad claims that he was pressured into signing the Agreement
because Gonzales and Amante’s demand for payment for the
“exploitation” of the life story of Moises Padilla, otherwise, the
respondents would “call a press conference declaring the whole
movie as fake, fraud and a hoax and would denounce the whole
thing in the press, radio, television and that they were going to
Court to stop the movie.
11. Lagunzad paid Gonzales P5,000 but contends that he merely did
so to placate Gonzales.
12. The filming of the movie was completed and was shown in
different theatres all over the country
13. Lagunzad refused to pay any additional amounts pursuant to the
Agreement thus, Gonzales filed as suit against Lagunzad
a. for the payment of P15,000 with legal interest and
b. Render an accounting of the proceeds of the picture and
pay the 2 1/2 % royalty
c. Attorney’s fees and other costs
14. Lagunzad contends that
a. the life of Padilla which was depicted in the movie were
matters of public knowledge and it occured when Padilla
was a public figure
b. The Licensing Agreement was without valid cause or
consideration and that he signed only because Gonzaga
threatened him with unfounded and harassing action
15. Lagunzad demanded that the Licensing Agreement be declared
null and void for being without any valid cause.
16. The Trial Court ruled in favor of Gonzaga and order Lagunzad to
pay P15,000 with an interest rate of 6% per annum and to render
an accounting for the royalties of 2 ½% form the gross income.
17. The CA affirmed the lower Court’s decision
18. Thus, Lagunzad filed the petition for review on Certiorari in the
SC
19. The SC denied for lack of merit but Lagunzad moved for
reconsideration on the additional argument that the movie
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production was in exercise of the Constitutional right of freedom
of expression and the Licensing Agreement is a form of restraint
on the freedom of speech of the press
ISSUES: ​(relevant to our discussion)
1. WON the Licensing Agreement was null and void for lack of,
or for having an illegal cause or consideration of contract.-NO.
The Licensing Agreement is NOT null and void and has the force of law
between the contracting parties.
RATIO:
1. The SC does not agree with petitioner’s submission that the
Licensing Agreement is null and void for lack of, or for having an
illegal cause or consideration.
2. While it is true that petitioner had purchased the rights to the book,
that did not dispense with the need for prior consent and authority
from the deceased heirs to portray publicly episodes in said
deceased's life and in that of his mother and the members of his
family. As held in Schuyler v. Curtis, "a privilege may be given the
surviving relatives of a deceased person to protect his memory, but
the privilege exists for the benefit of the living, to protect their
feelings and to prevent a violation of their own rights in the
character and memory of the deceased."
3. The Court finds it difficult to sustain petitioner's posture that his
consent to the Licensing Agreement was procured intimidation and
undue influence exerted on him by private respondent.
4. A contract is valid even though one of the parties entered into it
against his own wish and desires, or even against his better
judgment. In legal effect, there is no difference between a contract
wherein one of the contracting parties exchanges one condition for
another because he looks for greater profit or gain by reason of
such change, and an agreement wherein one of the contracting
parties agrees to accept the lesser of two disadvantages. In either
5.
6.
7.
case, he makes a choice free and untramelled and must accordingly
abide by it.
The Licensing Agreement has the force of law between the
contracting parties and since its provisions are not contrary to law,
morals, good customs, public order or public policy (Art. 1306,
Civil Code), petitioner should comply with it in good faith.
Neither does the SC find merit in petitioner's contention that the
Licensing Agreement infringes on the constitutional right of
freedom of speech and of the press.
The SC used the "balancing-of-interests test." wherein the principle
"requires a court to take conscious and detailed consideration of
the interplay of interests observable in a given situation or type of
situation."
a. In the case at bar, the interests observable are the right to
privacy asserted by respondent and the right of freedom of
expression invoked by petitioner. Taking into account the
interplay of those interests, we hold that under the
particular circumstances presented, and considering the
obligations assumed in the Licensing Agreement entered
into by petitioner, the validity of such agreement will
have to be upheld particularly because the limits of
freedom of expression are reached when expression
touches upon matters of essentially private concern.
The Petition for Review is denied and the judgement appealed from hereby
affirmed
SEPARATE OPINIONS: NONE
CONCURRING: NONE
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4. Liam Law v. Olympic Sawmill (YVONNE)
May 28, 1984 | Melencio-Herrera, J. | Cause Presumed to Exist and Lawful
2.
PETITIONER​: Liam Law (plaintiff-appellee)
RESPONDENTS​: Olympic Sawmill Co. and Elino Lee Chi
(defendants-appellants)
SUMMARY​:
Liam Law lent P10,000 to Olympic Sawmill Co. and Elino Lee Chi who failed
to pay. After giving extensions and still failing to pay the obligation, a collection
case was instituted asking for P10,000 principal obligation as well as P6,000 of
legal interest. Olympic Sawmill Co. and Elino Lee Chi claim that the interest is
usurious and cannot be claimed by petitioner without filing an answer in court to
recover it. But this does not apply here because it is the defendant claiming it is
usurious. For sometime now, usury has been legally non-existent. Interest can
now be charged as lender and borrower may agree upon.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties
relative to the P6,000.00 obligation, "it is presumed that it exists and is lawful,
unless the debtor proves the contrary." No evidentiary hearing having been held,
it has to be concluded that defendants (Olympic Sawmill Co. and Elino Lee Chi)
had not proven that the P6,000.00 obligation was illegal.
3.
4.
5.
6.
7.
DOCTRINE:
Art. 1354: Although the cause is not stated in the contract, it is presumed that it
exists and is lawful, unless the debtor proves the contrary.
Interest is presumed lawful unless contrary is proven.
FACTS:
1. This is an appeal by defendants from a Decision rendered by the
then Court of First Instance of Bulacan. The appeal was originally
8.
9.
taken to the then Court of Appeals, which endorsed it to this
instance stating that the issue involved was one of law.
On September 7, 1957, Liam Law loaned P10,000.00 without
interest to Olympic Sawmill Co. and Elino Lee Chi, at the
managing partner.
The loan became due on Jan 31, 1960, but was not paid on the
date, with the debtors(Olympic Sawmill Co. and Elino Lee Chi)
asking for an extensions of three months (up to April 30, 1960).
On March 17, 1960, the parties executed another loan document.
Payment of the P10,000.00 was extended to April 30, 1960, but the
obligation was increased by P6,000.00 as follows:
"That the sum of SIX THOUSAND PESOS (P6,000.00),
Philippine currency shall form part of the principal obligation to
answer for attorney's fees, legal interest, and other cost incident
thereto to be paid unto the creditor and his successors in interest
upon the termination of this agreement."
They again failed to pay the debt on April 30, 1960. On September
23, 1960, Liam Law instituted this collection case.
Olympic Sawmill Co. and Elino Lee Chi admitted the P10,000.00
principal obligation, but claimed that the additional P6,000.00
constituted usurious interest.
Upon application of Liam Law, the Trial Court issued, on the same
date of September 23, 1960, a writ of Attachment on real and
personal properties of defendants located at Karanglan, Nueva
Ecija. After the Writ of Attachment was implemented, proceedings
before the Trial Court versed principally in regards to the
attachment.
On January 18, 1961, an Order was issued by the Trial Court
stating that "after considering the manifestation of both counsel in
Chambers, the Court hereby allows both parties to simultaneously
submit a Motion for Summary Judgment.
On June 26, 1961, the Trial Court rendered decision ordering
Olympic Sawmill Co. and Elino Lee Chi to pay Liam Law "the
amount of P10,000.00 plus the further sum of P6,000.00 by way of
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liquidated damages . . . with legal rate of interest on both amounts
from April 30, 1960." It is from this judgment that defendants have
appealed.
10. The main thrust of Olympic Sawmill Co. and Elino Lee Chi’s
appeal is the allegation in their Answer that the P6,000.00
constituted usurious interest. They insist the claim of usury should
have been deemed admitted by plaintiff as it was "not denied
specifically and under oath".
ISSUES:
1. WON the Trial Court erred in ordering Olympic Sawmill Co. and
Elino Lee Chi to pay Liam Law the amount due plus the liquidated
damages.NO
2. WON the interest constituted a usurious interest. NO
usury, for the recovery of the usurious interest paid. In that case, if
the entity sued shall not file its answer under oath denying the
allegation of usury, the defendant shall be deemed to have
admitted the usury. The provision does not apply to a case, as in
the present, where it is the defendant, not the plaintiff, who is
alleging usury.
WHEREFORE, the appealed judgment is hereby affirmed, without
pronouncement as to costs.
RATIO:
SO ORDERED.
1.
2.
3.
Under Article 1354 of the Civil Code, in regards to the agreement
of the parties relative to the P6,000.00 obligation, "it is presumed
that it exists and is lawful, unless the debtor proves the contrary".
No evidentiary hearing having been held, it has to be concluded
that Olympic Sawmill Co. and Elino Lee Chi had not proven that
the P6,000.00 obligation was illegal.
Confirming the Trial Court's finding, we view the P6,000.00
obligation as liquidated damages suffered by plaintiff, as of March
17, 1960, representing loss of interest income, attorney's fees and
incidentals.
(On usury issue) The main thrust of defendants' appeal is the
allegation in their Answer that the P6,000.00 constituted usurious
interest. They insist the claim of usury should have been deemed
admitted by the plaintiff as it was "not denied specifically and
under oath" pursuant to Section 1, Rule 9 of the Rules of Court and
Section 9 of the Usury Law (Act 2655). The foregoing provision
envisages a complaint filed against an entity which has committed
Teehankee, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ ., concur.
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5. E. Razon v. PPA (Jacky)
June 22, 1987 | Justice Fernan | Cause of Contracts - MOTIVE
PETITIONER​: E. Razon, Inc. and Enrique Razon
RESPONDENTS​: Philippine Ports Authority, Primito S. Solis, Jr., Vicente T.
Suazo, Jr.
INTERVENOR​: Marina Ports Services, Inc.
SUMMARY​: In 1996, E. Razon, Inc. (ERI), was awarded by Philippine Ports
Authority (PPA) a 5-year contract top operate arrastre7 service for piers 3 and 5
at the South Harbor. The contract was renewed several times. In late 1978,
Enrique Razon, president of ERI, alleges that he was coerced to transfer 60%
ownership stocks to Romualdez, brother-in-law of former Pres. Marcos. In
effect, Romualdez gained control of ERI, amended its by-laws by reducing the
powers of Razon and changing the company name to Metro Port Service, Inc.
(MPSI). By Dec. 31, 1978, the management contract of ERI and PPA expired.
PPA extended and then renewed the contract for another 8 years beginning July
1, 1980. After Marcos was ousted, Razon took his company back and tried to
restore and improve its services and operations. Due to the demonstration held
by the truckers of ERI, PPA received several complaints from businesses and it
demanded an explanation from ERI. With ERI failing to reply promptly, PPA
informed ERI that it was cancelling the management contract and taking over
the operations of ERI. ERI wants to enforce the management contract claiming
PPA cannot unilaterally cancel the contract. SC held yes PPA can do that. The
cause of the management contract was unlawful and therefore, the contract is
invalid or void in the beginning. The cause in this case is the motives of the
parties. ​On the part of Romualdez, the motive was to be able to contract with the
government which he was then prohibited by law from doing, and on petitioner
Razon's part, to be able to renew his management contract for 8 years. (See
doctrine why in this case cause = motive). ​Void contracts do not need judicial
action and either one of the parties can unilaterally cancel.
​ARRASTRE - the operation of receiving, conveying, and loading or
unloading merchandise on piers or wharves
7
DOCTRINE: ​Contracts with unlawful causes are invalid.
While the general rule is that the causa of the contract must not be confused with
the motives of the parties, this case squarely fits into the exception that the
motive may be regarded as causa when it predetermines the purpose of the
contract.
FACTS:
1. E. Razon, Inc., (ERI) also known as Metro Port Service, Inc.
(MPSI), is a Philippine corporation. Enrique Razon was allegedly
the 100% equity owner.
2. In 1996, after a public bidding, ERI was awarded a 5-year contract
to operate the arrastre service for piers 3 and 5 at the South Harbor.
The government assured that the contract will be renewed without
public bidding. However, in 1971, the contract was not renewed
and a public bidding occurred. (There is a whole other case on this
mentioned but I don’t think it’s important. BASICALLY, in the
end of the other case, ERI now operates for all piers in South
Harbor and the 5-year management contract is renewable.)
3. In late 1978, President Marcos took over the company through
his brother-in-law, Alfredo “Bejo” Romualdez, who was then
appointed to run the company as the executive vice-president.
ERI’s corporate name was also changed to Metro Port Service,
Inc. (MPSI). Razon was still considered as the President but
lacked the necessary power to run the company. Romualdez, as
VP, had greater powers due to amendments of the company’s
by-laws. Razon alleges that he was coerced by Marcos’
emissaries to sign over 60% ownership stock to Romualdez.
4. On December 31, 1978, the contract of ERI/MPSI expired. It was
extended in 1979 to June 30, 1980, during which month PPA
executed a new contract in favor of ERI for a term of eight (8)
years, beginning July 1, 1980.
5. After the fall of Marcos, Razon ran the company again. Razon
tried to restore and improve its services and operations.
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6.
On July 18, 1986, some truckers staged a demonstration at the
main gate of South Harbor to complain about Razon’s
management of the arrastre operations. PPA then asked ERI/MPSI
for an explanation that should be given the next day.
7. ERI/MPSI failed to send a letter saying that they will respond
“next week” since it was a weekend. On the same day, July 19,
1986, PPA informed ERI/MPSI thru a letter that it was cancelling
the management contract and taking over the cargo handling
operations as well as the equipment of ERI “effective
immediately”. On July 21, 1986, PPA appointed Marina Port
Services, Inc. as interim operator of the arrastre service at South
Harbor.
8. ERI/MPSI said that they were denied due process with the
cancellation of the contract and wants to declare the cancellation
null and void.
9. Razon contends that cancelled arrastre contract was previously
awarded, not to Enrique Razon or his old company, E. Razon, Inc.,
but to Metro Port Services, Inc. that President Marcos'
brother-in-law, Alfredo `Bejo' Romualdez, admittedly controlled.
10. Razon wants to enforce the management contract.
ISSUES:
1. WON PPA can unilaterally cancel the management contract? YES
RATIO:
1.
2.
3.
The Management Contract was executed between ERI and PPA.
By petitioners’ own admission, ​at the time of the execution of the
Management Contract, petitioner E. Razon, Inc. later known as
Metro Port Services, Inc. ​was controlled by Romualdez,
brother-in-law of deposed President Marcos.
Under ​Section 5 of the Anti-Graft and Corrupt Practices Act (R.A.
No. 3019) ​Romualdez, by reason of his relationship with the then
President of the Philippines, was prohibited from intervening,
directly or indirectly, in any transaction or business with the
government. Thus the ​Management Contract, entered into by E.
Razon, Inc., ostensibly owned by petitioner Enrique Razon, but
in fact controlled by Romualdez as 60% equity owner thereof,
is null and void and of no effect, being one expressly prohibited
by law (par. [7], Art. 1409, Civil Code of the Philippines).
Furthermore, as will be shown later, the ​Management Contract is
the direct result of a previous illegal contract and, therefore, is
itself null and void under Article 1422 of the Civil Code.
4. Razon claims that the management contract is null and void
because it was executed under the control of Romualdez. Razon
alleges that he was coerce by Romualdez to transfer the ownership
stocks resulting to Romualdez gaining control of the company.
5. The ​invalidity springs not from vitiated consent nor absolute want
of monetary consideration, but for ​its having had an unlawful
cause — that of ​obtaining a government contract in violation of
law. ​While the general rule is that the causa of the contract must
not be confused with the motives of the parties, this case squarely
fits into the exception that the motive may be regarded as causa
when it predetermines the purpose of the contract​. (Liguez v. Court
of Appeals, 102 Phil. 577).
6. On the part of Romualdez, the motive was to be able to contract
with the government which he was then prohibited by law from
doing, and on petitioner Razon's part, to be able to renew his
management contract. For it is scarcely disputable that Enrique
Razon would not have transferred said shares of stock to
Romualdez without an assurance from the latter that he would be
unduly favored with a renewal of the Management Contract.
7. Since the contract was void from the very beginning, there is no
need for judicial action. It was well within the rights of PPA to
unilaterally cancel and treat as avoided the Management Contract
and no arbitrariness may be attached to its exercise of this right.
PETITION DISMISSED.
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6. Pangadil vs. CFI of Cotabato ( Donn)
August 31, 1982 | Vasquez, J | Essential Requisites of Contracts :Cause of
Contracts
PETITIONER:​Salandang Pangadil /Pangadil Malasmama
RESPONDENT:​CFI of Cotabato /Tandingan Kagui
SUMMARY:​Sometime in 1941, a parcel of land owned by
Pangadil’'s father was conveyed to the private respondents in an
oral transaction. In 1946, petitioner Salandang Pangadil filed in
respondent court an action praying for her appointment as
guardian of her minor brothers and sisters who are the other
petitioners in this case, to enable her to execute the necessary
document to formalize the verbal sale executed by their father.
The petition was granted and subsequently the questioned
document, entitled "Ratification De Una Venta", acknowledging
the sale made by their deceased father in favor of respondent
Kagui for the consideration of P750.00 was presented to court for
approval. It was ratified by the lower court. However, on January
7, 1969, Pangadil seeks the annulment of the aforementioned
document and the declaration of the nullity of the court order
approving said document. Pangadil also contended that the
transaction was a mortgage and not a sale. She also claimed that
respondent Kagui just coerced her father into misleading that the
transfer of the land is only one of mortgage, but indeed it was a
contract of sale. SC held that the contract was valid. Pangadil’s
accusation that the contract was inexistent and void ab initio for
being a simulated contract is without legal basis. This is because
pursuant to the Art. 1345 & 1346, a relative simulation, or one
where the parties conceal their true agreement, ​binds the parties
to their real agreement given that the purpose is not contrary to
law, morals, good customs, public order or public police.
DOCTRINE: Art . 1346. ​An absolutely simulated or fictitious
contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy​ binds the
parties to their real agreement. ​(no express mention of article
1350 - 1355 in this case)
FACTS :
1. The parcel of land in question was formerly owned by
Pangadil Maslamama. Sometime in December 1941, the
2. said land was conveyed by Pangadil Maslamama in favor of
Tandingan Kagui, respondent herein
3. The said transaction, the nature of which the petitioners
insist to be a mortgage and not a sale as claimed by the
private respondents, was merely oral and not evidenced by
any writing
4. On December 20, 1946, petitioner Salandang Pangadil, one
of the petitioners herein, who is a daughter of Pangadil
Maslamama filed in the respondent court "Actuacion
Especial No. 33" praying for her appointment as guardian of
her minor brothers and sisters who are the other petitioners
in this case. The avowed purpose of the said guardianship
proceeding, as stated in the petition filed therein, was to
enable the petitioners to execute the necessary document to
formalize the verbal sale executed by their father Pangadil
Maslamama of the land in question in favor of private
respondent Tandingan Kagui executed during the lifetime of
Pangadil Maslamama. The petition was granted, Salandang
Pangadil was appointed guardian and took her oath as such.
5. . Salandang Pangadil later on executed the questioned
document, “Ratification de Una Venta” pursuant to which
they acknowledged the sale made by their deceased father
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Pangadil Malaslamama for Php 750.00. The sale was
approved by the lower court.
6. 21 years after the ratification of the sale ( January 7, 1969,)
petitioners filed Civil Case No. 2187 seeking the annulment
of the aforementioned document.
7. The respondent filed a motion to dismiss Civil Case No.
2187 on two (2) grounds, namely:
(1) that plaintiffs' cause of action has already prescribed; and
(2) that the cause of action is barred by a prior judgment.
8. The respondent court declared the document, entitled
"Ratificacion De Una Venta" legal, binding and effective and, hence,
the action to annul the sale which was filed more than twenty-one
years after the approval thereof is already barred by the statute of
limitations.
9. Petitioners dispute the said pronouncement by the respondent
court on the principal ground that the document known as
"Ratificacion De Una Venta" is inexistent and void and the action for
a declaration of its non-existence does not prescribe pursuant to Art.
1410 of the Civil Code. The basis of their claim that the said
document is of that nature is that it is allegedly fictitious and contrary
to public policy. It is supposedly violative of public policy because it
deprived the minor brothers and sisters of Salandang Pangadil of
their shares in the inheritance from their father.
10. The contention that it is fictitious is premised on the allegation
that respondent Tandingan Kagui misled petitioners Salandang
Pangadil and Tinting Pangadil into affixing their thumbmarks to the
questioned document on the misrepresentation that it was merely to
ratify an oral contract of mortgage entered into by their father
Pangadil Maslamama in favor of respondent Tandingan Kagui.
ISSUE : Whether or not the contract of sale between Pangadil
and Kagui is inexistent and void ab initio
RULING : The contract of sale is valid.
1. No circumstance has been alleged by the petitioners to
sustain its contention that the execution of the aforesaid
document is contrary to public policy.
2. The supposed inexistence of the questioned contract is
predicated on the allegation of the petitioners that the
execution of the questioned document was attended by fraud
and misrepresentation.
3. Assuming, once again, that the execution of the deed of
ratification was attended by fraud, such circumstance would
only make the contract voidable or annulable and not an
inexistent and void contract in accordance with Article 1409
of the same Code. The action to annul a voidable contract is
not imprescriptible, unlike in the case of an inexistent
contract. If the action to annul a voidable contract is based
on fraud, as in the case herein, it prescribes in four years
from the time of the discovery of the fraud.
4. Petitioners do not deny that the land had been conveyed by
their father to private respondent Tandingan Kagui by means
of a transaction which was not evidenced by a writing. They
merely claim that it was not a sale but only a mortgage.
5. It is unlikely that when Sandang Pangadil executed the
document in question in behalf of her father, she was totally
ignorant of the nature of the documents to which she had
affixed her written conformity.
6. It is equally unbelievable that in the span of time from
December 1941 up to the date that Civil Case No. 2187 was
filed on January 7, 1969, a period of more than twenty-seven
years, the petitioners would not have taken any step to verify
the status of the land of their father which had been in the
possession of the private respondents during all the time,
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particularly as to the possibility of redeeming the supposed
mortgage their father had constituted thereon. Their inaction
for such a considerable period of time reflects on the
credibility of their pretense that they merely intended to
confirm an oral mortgage, insteadof a sale of the land in
question.
7. There is less legal basis to hold that the questioned document
is ​inexistent and void ab initio for being supposedly a
simulated or fictitious contrac​t. Under the law, the
simulation of a contract may either be absolute or relative. It
is only when the contract is absolutely simulated or fictitious
that it is deemed void. ​There is absolute simulation "when
the parties do not intend to be bound at all.​" In case the
parties merely conceal their true agreement, ​the simulation
is relative​, and the contract with that defect is binding upon
the parties unless it prejudices a third person and is
intended for a purpose contrary to law, morals, good
customs, public order or public policy.
8. By petitioners' own admission​, ​they intended to be bound
thereby​; they merely contend that they thought it was to
ratify a contract of oral mortgage, instead of an oral sale of
land. In short, it is not a contract wherein the parties do not
intend to be bound at all which would thereby make it
absolutely simulated and, therefore, void.
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7. ANTONIA TORRES vs CA (LIZ)
December 9, 1999 | Panaganiban | Cause of Contract
Petitioners​: Antonia Torres assisted by her husband Angelo Torres and
Emeteria Baring
Respondent​: COURT OF APPEALS and MANUEL TORRES
Summary:
Petitioners Torres and Baring entered into a “joint venture agreement”
with Respondent Torres for the development of a parcel of land into a
subdivision. They executed a Deed of Sale covering the said parcel of
land in favor of respondent Manual Torres, who then had it registered in
his name. By mortgaging the property, respondent Manuel Torres
obtained from Equitable Bank a loan of P40,000, which was supposed to
be used for the development of subdivision as per the JVA. However, the
project did not push through and the land was subsequently foreclosed by
the bank.
Petitioners Antonia Torres alleged that it was due to respondent’s lack of
funds/skills that caused the project to fail, and that respondent use the
loan in the furtherance of his own company. On the other hand,
respondent Manuel Torres alleged that he used the loan to implement the
JVA – surveying and subdivision of lots, approval of the project,
advertisement, and construction of roads and the likes, and that he did all
of these for a total of P85,000.
Petitioners filed a case for estafa against respondent but failed. They then
instituted a civil case. CA held that the two parties formed a partnership
for the development of subdivision and as such, they must bear the loss
suffered by the partnership in the same proportion as their share in
profits. Hence, the petition. SC held that there was a joint venture/
Partnership.
Doctrine:
A reading of the terms of agreement shows the existence of partnership
pursuant to Art 1767 of Civil Code, which states “By the contract of
partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the
profits among themselves.” In the agreement, petitioners would
contribute property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in addition to
his industry, the amount needed for general expenses and other costs
Facts:
Petitioners Torres and Baring entered into a “joint venture agreement” with
Respondent Torres for the development of a parcel of land into a
subdivision. They executed a Deed of Sale covering the said parcel of land
in favor of respondent Manual Torres, who then had it registered in his
name. By mortgaging the property, respondent Manuel Torres obtained
from Equitable Bank a loan of P40,000, which was supposed to be used for
the development of subdivision as per the JVA. However, the project did
not push through and the land was subsequently foreclosed by the bank.
Petitioners Antonia Torres alleged that it was due to respondent’s lack of
funds/skills that caused the project to fail, and that respondent use the loan
in the furtherance of his own company. On the other hand, respondent
Manuel Torres alleged that he used the loan to implement the JVA –
surveying and subdivision of lots, approval of the project, advertisement,
and construction of roads and the likes, and that he did all of these for a
total of P85,000.
Petitioners filed a case for estafa against respondent but failed. They then
instituted a civil case. CA held that the two parties formed a partnership for
the development of subdivision and as such, they must bear the loss
suffered by the partnership in the same proportion as their share in profits.
Hence, the petition.
Issue #1:
Whether or not the transaction between petitioner and respondent was that
of joint venture/partnership.
Held:
Yes. There formed a partnership between the two on the basis of
joint-venture agreement and deed of sale. A reading of the terms of
agreement shows the existence of partnership pursuant to Art 1767 of Civil
Code, which states “By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.” In the
agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while
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respondent would give, in addition to his industry, the amount needed for
general expenses and other costs. Furthermore, the income from the said
project would be divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a partnership.
Issue #2:
Whether or not the deed of sale between the two was valid.
Held:
No. Petitioners were wrong in contending that the JVA is void under Article
1422[14] of the Civil Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid consideration.
The Joint Venture Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or
promise of a thing or service by another.
In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the
trial court, the land was in effect given to the partnership as petitioners
participation therein. There was therefore a consideration for the sale, the
petitioners acting in the expectation that, should the venture come into
fruition, they would get sixty percent of the net profits.
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8. Agan, Jr. v. Philippine International Air Terminals Co. (KARA)
May 5, 2003 | Puno, J. | Cause of Contract
PETITIONER​: Agan, Jr.
RESPONDENTS​: Philippine International Air Terminal Co.
SUMMARY​: Asia’s Emerging Dragon Corp submitted a proposal to the
Government for the development of NAIA IPT III. It was endorsed to NEDA
which in turn was reviewed and approved it for bidding. Paircargo Consortium
was the only company that submitted a competitive proposal. Later, Paircargo
was incorporated to PIATCO. The project was then awarded to PIATCO. The
government and PIATCO signed a Concession Agreement to franchise and
operate the said terminal for 21 years. Thereafter, ​an Amended and Restated
Concession Agreement (ARCA) and 3 Supplements were signed by the
Government and PIATCO. ​The court ruled that the 1997 Concession
Agreement is invalid as it contains provisions that substantially depart from the
draft Concession Agreement included in the Bid Documents. The amendments
on (1) the types of fees or charges that are subject to MIAA regulation or control
and the extent thereof and (2) the assumption by the Government, under certain
conditions, of the liabilities of PIATCO ​directly translates concrete financial
advantages to PIATCO that were previously not available during the
bidding process. These amendments convert the 1997 Concession Agreement to
an ​entirely different agreement from the contract bidded out or the draft
Concession Agreement.
DOCTRINE: ​An essential element of a publicly bidded contract is that all
bidders must be on equal footing. Not simply in terms of application of the
procedural rules and regulations imposed by the relevant government agency,
but more importantly, on the contract bidded upon. Each bidder must be
able to bid on the same thing.
While we concede that a winning bidder is not precluded from modifying or
amending certain provisions of the contract bidded upon, ​such changes must
not constitute substantial or material amendments that would alter the basic
parameters of the contract and would constitute a denial to the other
bidders of the opportunity to bid on the same terms.
FACTS:
1. Some time in 1993, six business leaders, explored the possibility of
investing in the new NAIA airport terminal, so they formed Asians
Emerging Dragon Corp.
2. On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC)
submitted an unsolicited proposal to the Government for the
development of Ninoy Aquino International Airport International
Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement pursuant to RA 6957, as
amended.
3. It was endorsed to the National Economic Development Authority
(NEDA), which, in turn, reviewed and approved it for bidding.
4. The Paircargo Consortium was the only company that submitted a
competitive proposal.
5. AEDC questioned, among others, the financial capability of
Paircargo Consortium.
6. However, the Pre-Qualification Bids and Awards Committee
(PBAC) had prequalified the Paircargo Consortium to undertake
the project.
7. Later, Paircargo Consortium incorporated into Philippine
International Airport Terminals Co., (PIATCO).
8. And for failure of AEDC to match the price proposal submitted by
PIATCO, the project was awarded to PIATCO.
9. On July 12, 1997, the Government signed the 1997 Concession
Agreement which permits PIATCO to franchise and operate the
said terminal for 21 years.
10. Thereafter, the Amended and Restated Concession Agreement
(ARCA) and three Supplements thereto were signed by the
Government and PIATCO. ​It was amended in the matters of
pertaining to the definition of the obligations given to the
concessionaire, development of facilities and proceeds, fees and
charges, and the termination of contract.
11. Since MIAA is charged with the maintenance and operations of
NAIA terminals I and II, it has a contract with several service
providers. The workers filed the petition for prohibition claiming
that they would lose their job, and the service providers joined
them, filed a motion for intervention
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12. Likewise several employees of the MIAA filed a petition assailing
the legality of arrangements. A group of congressmen filed similar
petitions. Pres. Arroyo declared in her speech that she will not
honor PIATCO contracts which the Exec. Branch's legal office
concluded null and void
ISSUES:
W/N the Concession Agreement is valid - ​NO
RATIO:
1. The 1997 Concession Agreement is invalid as it contains
provisions that substantially depart from the draft Concession
Agreement included in the Bid Documents. They maintain that a
substantial departure from the draft Concession Agreement is a
violation of public policy and renders the 1997 Concession
Agreement null and void.
2. PIATCO maintains​, however, that the Concession Agreement
attached to the Bid Documents is intended to be a draft, i.e.,
subject to change, alteration or modification, and that this intention
was clear to all participants, including AEDC, and DOTC/MIAA.
3. An essential element of a publicly bidded contract is that all
bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by the
relevant government agency, ​but more importantly, on the
contract bidded upon. Each bidder must be able to bid on the
same thing.
4. If the winning bidder is allowed to later include or modify certain
provisions in the contract awarded such that the contract is altered
in any material respect, then the essence of fair competition in the
public bidding is destroyed.
5. While we concede that a winning bidder is not precluded from
modifying or amending certain provisions of the contract bidded
upon, ​such changes must not constitute substantial or material
amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of
the opportunity to bid on the same terms.
6. The determination of whether or not a modification or amendment
of a contract bidded out constitutes a substantial amendment rests
on whether the contract, when taken as a whole, would contain
substantially different terms and conditions that would have the
effect of altering the technical and/or financial proposals
previously submitted by other bidders.
7. The alterations and modifcations in the contract executed between
the government and the winning bidder must not be such as to
render such executed contract to be an ​entirely different contract
from the one that was bidded upon.
8. A close comparison of the draft Concession Agreement attached to
the Bid Documents and the 1997 Concession Agreement reveals
that the documents differ in at least two material respects:
a. Modification on the Public Utility Revenues and
Non-Public Utility Revenues that may be collected by
PIATCO
b. Assumption by the Government of the liabilities of
PIATCO in the event of the latter's default thereof
9. The fact that the foregoing substantial amendments were made on
the 1997 Concession Agreement renders the same null and void for
being contrary to public policy.
10. These amendments convert the 1997 Concession Agreement to an
entirely different agreement from the contract bidded out or the
draft Concession Agreement.
11. The amendments on (1) the types of fees or charges that are subject
to MIAA regulation or control and the extent thereof and (2) the
assumption by the Government, under certain conditions, of the
liabilities of PIATCO ​directly translates concrete financial
advantages to PIATCO that were previously not available
during the bidding process.
12. These amendments cannot be taken as merely supplements to or
implementing provisions of those already existing in the draft
Concession Agreement.
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