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CONTRACTS

Chapter I. General Provisions

A. Definition- Art. 1305


B. Elements
1. Essential elements (see Chapter II, infra)
a. Consent
b. Object
c. Cause
2. Natural elements
3. Accidental elements (see D.,3., infra)
C. Characteristics
1. Obligatory force-Art. 1308
2. Mutuality-Arts. 1308-1310 (see also Art. 1473)
Case:
GSIS vs. CA, 228 SCRA 183 (1993) full text.
3. Relativity
a. Contracts take effect only between the parties, their assigns and heirs - Art.
1311
Cases:
Manila Railroad Co. vs. La Compania Transatlantica, 83 Phil. 875 (1918)

MANILA RAILROAD CO. V COMPANIA TRANSATLANTICA


STREET; October 26, 1918

NATURE
Appeal from a judgment of the Court of the First Instance of Manila

FACTS
-The Manila Railroad Company purchased two locomotive boilers in Europe and contracted with the
Compaia Trasatlntica to transport the same to Manila by its steamship named Alicante. The tackle
and equipment of the steamship Alicante being insufficient to discharge said locomotive boilers from
the ship to the shore, the Compaia Trasatlntica. entered into a contract with the Atlantic, Gulf &
Pacific Company by virtue of the terms of which the latter company agreed to discharge the said
locomotive boilers from the said steamship Alicante by using its (Atlantiic) tackle and equipment for
that purpose. In the effort of the Atlantic, Gulf & Pacific Company to discharge the said locomotive
boilers from the said steamship. The Atlantic Company sent out its crane in charge of foreman Leyden.
In preparing to hoist the first boiler the sling was unfortunately adjusted near the middle of the boiler,
and it was thus raised nearly in a horizontal position. The boiler was too long to clear the hatch in this
position, and after one end of the boiler had emerged on one side of the hatch, the other still remained
below on the other side. When the boiler had been gotten into this position and was being hoisted still
further, a rivet near the head of the boiler was caught under the edge of the hatch. The weight on the
crane was thus increased by a strain estimated at fifteen tons with the result that the cable of the sling
parted and the boiler fell to the bottom of the ship's hold. The sling was again adjusted to the boiler
but instead of being placed near the middle it was now slung nearer one of the ends, as should have
been done at first. The boiler was again lifted; but as it was being brought up, the bolt at the end of the
derrick boom broke, and again the boiler fell. The boiler was damaged and brought back to Europe for
repair which cost P22, 343.29.
- The judge of the Court of First Instance gave judgment in favor of the plaintiff against the Atlantic
Company, but absolved the Steamship Company from the complaint. The plaintiff has appealed from
the action of the court in failing to give judgment against the Steamship Company, while the Atlantic
Company has appealed from the judgment against it.

ISSUES
1. WON the Steamship Company is liable to the plaintiff by reason of having delivered the
boiler in question in a damaged condition
2. WON the Atlantic Company is liable to be made to respond to the steamship company for the
amount the latter may be required to pay to the plaintiff for the damage done
3. WON the Atlantic Company is directly liable to the plaintiff, as the trial court held.

HELD
1. YES
- Under the contract for transportation from England to Manila, the Steamship Company is liable to the
plaintiff for the injury done to the boiler while it was being discharged from the ship. The obligation to
transport the boiler necessarily involves the duty to convey and deliver it in a proper condition
according to its nature, and conformably with good faith, custom, and the law (art. 1258, Civ. Code).
The contract to convey imports the duty to convey and deliver safely and securely with reference to
the degree of care which, under the circumstances, are required by law and custom applicable to the
case. The duty to carry and to carry safely is all one. Such being the contract of the Steamship
Company, said company is necessarily liable, under articles 1103 and 1104 of the Civil Code, for the
consequences of the omission of the care necessary to the, proper performance of its obligation. Nor
does the Steamship Company escape liability by reason of the fact that it employed a competent
independent contractor to discharge the boilers. in the performance of this service the Atlantic
Company was no more than a servant or employee of the Steamship Company, and it has never yet
been held that the failure to comply with a contractual obligation can be excused by showing that such
delinquency was due to the negligence of, one to whom the contracting party had committed the
performance of the contract.
2. YES
- The defense of the Atlantic Company comprises two contentions, to-wit, first, that by the terms of the
engagement in accordance with which the Atlantic Company agreed to render the service, all risk
incident to the discharge of the boilers was assumed by the Steamship Company; and secondly, that
the AtIantic Company should be absolved under the last paragraph of article 1903 of the Civil Code,
inasmuch as it had used due care in the selection of the employee whose negligent act caused the
damage in question.
- Atlantic agreed to lift the boilers out of the Alicante, as upon other later occasions, but the Steamship
Company was notified that the service would only be rendered upon the distinct understanding that
the, Atlantic Company would not be responsible for damage
- As to the first defense, Court held that every contract for the prestation of service has an inseparable
implicit obligation, the duty to exercise due care in the accomplishment of the work; and no
reservation whereby the person rendering the services seeks to escape from the consequences of a
violation of this obligation can be viewed with favor.
- As to the second defense, the Court held that the obligation of the Atlantic Company was created by
contract, and the defense of due diligence of a father could only be used in cases where negligence
arises in the absence of an agreement.
- The Atlantic Company is liable to the Steamship Company for the damages brought upon the latter
by the failure of the Atlantic Company to use due care in discharging the boiler, regardless of the fact
that the damage was caused by the negligence of an employee who was qualified for the work and
who had been chosen by the Atlantic Company with due care.
3. NO
- If there had been no contract of any sort between the Atlantic Company and the Steamship Company,
an action could have been maintained by the Railroad Company, as owner, against the Atlantic
Company to recover the damages sustained by the former. But there was a contract.
- The Railroad Company can have no right of action to recover damages from the Atlantic Company for
the wrongful act which constituted the violation of said contract. The rights of the plaintiff can only be
made effective through the Compaia Trasatlntica de Barcelona with whom the contract of
affreightment was made.

DKC Holdings Corp. vs. CA, 329 SCRA 666 (2000)

DKC HOLDINGS CORPORATION vs COURT OF APPEALS G.R. No. 118248. April 5, 2000 case digest

Concept: Art. 1311


Facts
The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila
which was originally owned by private respondent Victor U. Bartolomes deceased mother, Encarnacion Bartolome,
under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in
front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site.
March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion Bartolome (Victors deceased
mom). DKC was given the option to lease or lease with purchase the subject land, which option must be exercised
within a period of two years counted from the signing of the Contract. In turn, DKC undertook to pay P3,000.00 a
month as consideration for the reservation of its option. Within the two-year period, DKC shall serve formal written
notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in
case DKC chose to lease the property, it may take actual possession of the premises. In such an event, the lease
shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for
the first six years and P18,000.00 for the next six years, in case of renewal.
DKC regularly paid Encarnacion until her death in January 1990. DKC then directed its payment to the son of
Enacarnacion who is the sole heir but Victor (Encarnacions son) refused the payment.
January 10, 1990. Victor executed an affidavit of Self Adjudication all over her deceased moms properties,
including the subject lot. Victor the dick then cancelled the deed of transfer of DKC and then issued a transfer
certificate under his name, what a dick.
March 14, 1990. DKC sent a notice to Victor the royal douche, stating that they are going to exercise their option to
lease, tendering the amount of P15,000 as rent. Victor the douche, being a dick as he is, refused payment.
DKC then opened a saving account with the China Banking Corp. under the name of Victor and deposited the
P15,000 as rental fee while also adding another P6000 for reservation fees
DKC also tried to register and annotate the Contract on the title of Victor the dick to the property. Although
respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same
or even enter it in the day book or primary register.
April 23, 1990. DKC filed a complaint for specific performance and damages against Victor and the Register of
Deeds. DKC prayed for the surrender and delivery of possession of the subject land in accordance with the Contract
terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00
as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as
attorneys fees.
During the May of 1990, some guy named Andres Lonzano filed a motion for intervention with motion to dismiss for
he was a tenant-tiller of the subject property, dude is under the Comprehensive Agrarian Reform Law, the motion was
denied by the court, poor guy.
The lower court then rendered its decision, it dismissed the complaint and ordered DKC to pay Victor for P30,000
as attorneys fee. On appeal, the CA affirmed the decision of the lower court

Issue: W/ON the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner
was terminated upon her death or whether it binds her sole heir, Victor, even after her demise.

Held: No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject Contract of Lease with
Option to buy executed by his predecessor-in-interest. It is futile for Victor to insist that he is not a party to the
contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion,
there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had
and what is valid and binding against her is also valid and binding as against him. The general rule, therefore, is
that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and
obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.

b. No one may contract in the name of another - Art. 1317


Case:
Gutierrez Hmnos. Vs. Orense, 28 Phil. 571 (1914)
GUTIERREZ HERMANOS vs ORENSE G.R. No. 9188 December 4, 1914
FACTS:

On and before Februaru 14, 1907, Engracio Orense had been the owner of a parcel of land in Guinobatan, Albay.

On February 14, 1907, Jose Duran, a nephew of Orense, sold the property for P1,500 to Gutierrez Hermanos, with
Orenses knowledge and consent, executed before a notary a public instrument. The said public instrument contained
a provision giving Duran the right to repurchase it for the same price within a period of four years from the date of the
said instrument.
Orense continued occupying the land by virtue of a contract of lease.

After the lapse of four years, Gutierrez asked Orense to deliver the property to the company and to pay rentals for the
use of the property.

Orense refused to do so. He claimed that the sale was void because it was done without his authority and that he did
not authorize his nephew to enter into such contract.

During trial, Orense was presented as witness of the defense. He states that the sale was done with his knowledge
and consent. Because of such testimony, it was ascertained that he did give his nephew, Duran, authority to convey
the land. Duran was acquitted of criminal charges and the company demanded that Orense execute the proper deed
of conveyance of the property.

ISSUE: Whether or not Orense is bound by Durans act of selling the formers property

HELD: Yes. It was proven during trial that he gave his consent to the sale. Such act of Orense impliedly conferred to
Duran the power of agency. The principal must therefore fulfill all the obligations contracted by the agent, who acted
within the scope of his jurisdiction.

Gutierrez HermanosVs Orense (Gr. No. L-9188 1914)


Facts:
Orense is the owner a parcel of land (with masonry house, and with the niparooferected) situated in the pueblo of
Guinobatan, Albay. This property has beenrecorded in the new property registry in his name. Feb 14, 1907. Jose DURAN, a nephew
of Orense, executed before a notary apublic instrument that he sold and conveyed to the plaintiff company the saidproperty for
P1,500 and that the vendor Duran reserved to himself the right torepurchase it for the same price within a period of four years.
Gutierrez Hermanos had not entered into possession of the purchased property,because of its
continued occupancy by ORENSE and DURAN by virtue of a contractof lease executed by the plaintiff to Duran, effective up to
February 14, 1911.After the lapse of the four years stipulated for the redemption, the defendantrefused to deliver the property to the
purchaser. Gutierrez Hermanos then chargedDURAN with estafa, for having represented himself in the said deed of sale to be
theabsolute owner of the land. During that trial, when ORENSE was called as a witness, he admitted that he consented to Durans
selling of property under right of redemption. Because of this,the court acquitted DURAN for charge of estafa. Mar 5, 1913 Gutierrez
Hermanos then filed a complaint in the CFI Albay againstEngracioOrense.
Petitioner Claims that The instrument of sale of the property, executed by Jose Duran, was publicly andfreely confirmed
and ratified by ORENSE. In order to perfect the title to the saidproperty, all plaintiff had to do was demand of Orense to execute in
legal form adeed of conveyance. But Orense refused to do so, without any justifiable cause orreason, and so he should be
compelled to execute the said deed by an expressorder of the court. Jose DURAN is notoriously insolvent and cannot reimburse the
plaintiff companyfor the price of the sale which he received, nor pay any sum for the losses anddamages occasioned by the sale.
Also, Duran had been occupying the said propertysince February 14, 1911, and refused to pay the rental notwithstanding the
demandmade upon him at the rate of P30 per month. Plaintiff prays that the land and improvements be declared as
belonginglegitimately and exclusively to him, and that defendant be ordered to execute inthe plaintiff's behalf the said instrument of
transfer and conveyance of the propertyand of all the right, interest, title and share which the defendant has.
Respondent contends that the Facts in the complaint did not constitute a cause of action and He is the lawful owner of the
property claimed in the complaint, and since his Ownership was recorded in the property registry, this was conclusive against the
plaintiff, He had not executed any written power of attorney nor given any verbal authorityto Jose DURAN to sell theproperty to
Gutierrez Hermanos. His knowledge of the sale was acquired long after the execution of the contract ofsale between Duran and
Gutierrez Hermanos, and he did not intentionally anddeliberately perform any act such as might have induced the plaintiff company
tobelieve that Duran was empowered and authorized by the defendant.

Issue:

Whether Orense is bound by Durans act of selling plaintiffs property.

Held:
Yes. Ratio It having been proven at the trial that he gave his consent to the said sale, itfollows that the
defendant conferred verbal, or at least implied, power of agencyupon his nephew Duran, who accepted it in the same way by selling
the saidproperty. The principal must therefore fulfill all the obligations contracted by theagent, who acted within the scope of his
authority. (Civil Code, arts. 1709, 1710 and
1727)Article 1259 of the Civil Code prescribes: "No one can contract in thename of another without being authorized by him or
without his legalrepresentation according to law. A contract executed in the name of another by onewho has neither his authorization
nor legal representation shall be void, unless itshould be ratified by the person in whose name it was executed before beingrevoked
by the other contracting party.- The sworn statement made by the defendant, Orense, while testifying as a witness
at the trial of Duran for estafa, virtually confirms and ratifies the sale of his propertyeffected by his nephew, Duran, and, pursuant to
article 1313 of the Civil Code,remedies all defects which the contract may have contained from the moment of its execution.
D. Parties
1. Auto-contracts
2. Freedom to contract - Art. 1306
Cases:
Gabriel vs. Monte de Piedad, 71 Phil. 497 (1941)
[ G.R. No. 47806, April 14, 1941 ]

LEONCIO GABRIEL, PETITIONER, VS. MONTE DE PIEDAD Y CAJA DE AHORROS AND THE COURT OP APPEALS, RESPONDENTS.

DECISION

LAUREL, J.:

The herein petitioner was employed as appraiser of jewels in the pawnshop of the Monte de Piedad from 1913 up to May, 1933. On December 13,
1932,. he executed a chattel mortgage to secure the payment of the deficiencies which resulted from his erroneous appraisal of the jewels pawned to
the appellee, amounting to P14,679.07, with six per cent (6%) interest from said date. In this chattel mortgage, the appellant promised to pay to the
appellee the sum of P300 a month until the sum of P14,679.07, with interest is fully paid. The document was registered on December 22, 1932
(statement, decision of Court of Appeals) . To recover the aforementioned sum less what had been paid, amounting to P3,333.25 or the balance of
P11,345.75, and in case of default to effectuate the chattel mortgage, an action was instituted against the petitioner by the respondent Monte de
Piedad in the Court of First Instance of Manila (civil case No. 50847). The petitioner answered, denying generally and specifically all the speci- fications
therein, and also denied under oath the genuiness of the execution of the alleged chattel mortgage attached thereto. By way of special defense, he
alleged (1) that the chattel mortgage was a part of a scheme on the part of the management of the Monte de Piedad to cover up supposed losses
incurred in its pawnshop department; (2) that a criminal action had been instituted at the instance of the plaintiff against him wherein said chattel
mortgage was presented by the prosecution with regard to his supposed responsibility as expert appraiser of jewels of the plaintiff entity but he was
therein acquitted; and (3) that said acquittal constituted a bar to the civil case. By way of crosscomplaint, the petitioner alleged (1) that the chattel
mortgage was entered into by E. Marco for and in behalf of the Monte de Piedad without being duly authorized to do so by the latter; (2) that the
defendant was induced, through false representation, to sign said chattel mortgage against his will; (3) that the chattel mortgage was based upon all
nonexisting subject matter and nonexisting consideration; and (4) that the chattel mortgage was null and void ab initio. By way of counterclaim, the
petitioner alleged (1) that the payments made by him for the account of the chattel mortgage amounting to P3,333.25 were made through deceit and
without his consent and consisted of P300 monthly deductions from his salary, printing job for plaintiff done by him in his printing press, and
reimbursement made from the pocket of E. Marco; (2) that he has received P356.25 a month as expert appraiser of the plaintiff and that he was sepa-
rated arbitrarily at the end of the month of May 1933, from the plaintiff entity without lawful cause and one month notice and plaintiff failed to pay him
his salary for the month of May, 1933 and the month of June, 1933, in accordance with law; and (3) that due to the malicious and systematic
prosecution brought in criminal case No. 49078 and in the present case, he suffered damages and losses both materially and in his reputation in the
amount of at least P15,000. Wherefore, petitioner, among others, wayed that the Monte de Piedad be ordered to return the unlawful deductions from
his monthly remuneration, to pay his salary for the months of May and June, 1933, and damages and losses he suffered amounting to P15,000.

The lower court rendered judgment in favor of the Monte de Piedad against the herein petitioner. Petitioner brought the case on appeal to the Court of
Appeals, which affirmed the judgment of the lower court in a decision rendered May 29, 1940. Hence, this petition for review by certiorari.

Petitioner contends that the provisions of the chattel mortgage contract by which he guaranteed to pay the deficiencies amounting to P14,679.07 are
contrary to law, morals and public policy, and hence, the chattel mortgage contract is ineffective and the principal obligation secured by it is void. A
contract is to be judged by its character, and courts will look to the substance and not to the mere form of the transaction. The freedom of contract is
both a constitutional and statutory right and to uphold this right, courts should move with all the necessary caution and prudence in holding contracts
void. (People vs. Pomar, 46 Phil., 440; Ferrazzini vs. Gsell, 34 Phil., 697.) At any rate, courts should not rashly extend the rule which holds that a
contract is void as against public policy. The term "public policy" is vague and uncertain in meaning, floating and changeable in connotation. It may be
said, however, that, in general, a contract which is neither prohibited by law nor condemned by judicial decision, nor contrary to public morals,
contravenes no public policy. In the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against
public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or
contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of
individual rights, whether of personal liability or of private property. Examining the contract at bar, we are of the opinion that it does not in anyway
militate against the public good. Neither does it contravene the policy of the law nor the established interests of society.

Petitioner also contends that the chattel mortgage in question is void because it lacks consideration. A consideration, in the legal sense of the word, is
some right, interest, benefit, or advantage conferred upon the promisor, to which he is otherwise not lawfully entitled, or any de- triment, prejudice, loss,
or disadvantage suffered or undertaken by the promisee other than to such as he is at the time of consent bound to suffer. We think that there is
sufficient consideration in this contract, for, according to the Court of Appeals, "it has been satisfactorily established that it was executed voluntarily by
the latter to guarantee the deficiencies resulting from his erroneous appraisals of the jewels." A preexisting admitted liability is a good consideration for
a promise. The fact that the bargain is a hard one will not deprive it of validity. The exception to this rule in modern legislation is where the inadequacy
is so gross as to amount to fraud, oppression or undue influence, or when statutes require the consideration to be adequate. We are not convinced that
the instant case falls within the exception.

Another objection raised is that the requirement of section 5 of Act No. 1508 has not been complied with. We think that there is substantial compliance
with the requirements of the Chattel Mortgage Law on this point. The wording of the affidavit under discussion, as it appears from the record, is almost
in the same language of the statute. Likewise, it appears that it was signed by E. Marco, who was Director-General of the Monte de Piedad at the time
of the execution of the contract of chattel mortgage. The Court of Appeals found that "the contention that director Marco had no authority to enter into
the agreement is without merit. It appears that there was confirmation of Exhibit A by the Consejo de administration of the Monte de Piedad." Statutory
requirements as to forms or words of the affidavits in chattel mortgage contracts must be substantially, but need not be literally, complied with.

The second assignment of error made by the petitioner is that the Court of Appeals erred in not holding that the acquittal of the petitioner in criminal
case No. 49078 of the Court of First Instance of Manila bars the action to enforce any civil liability under said chattel mortgage. We do not need to dwell
at length on this assignment of error, for we find no reason for disturbing the conclusion reached by the Court of Appeals on this point:

"The appellant claims that his acquittal in criminal case No. 49078 of the Court of First Instance of Manila is ft bar to the institution of the present case.
The evidence of record does not bear out this contention. There is no identity of subject matter between the two cases; nor is the instant case
dependent upon the said criminal action. We agree with the trial court that the transactions involved in this case are different from those involved in
criminal case No. 49078. The court's finding that the transactions involved in the case at bar commenced in August, 1932, can not be considered
erroneous simply because Exhibit F-32 of the plaintiff is allegedly dated August 20, 1931. Exhibit F-22 can not be given any probative value, it was
undated during the hearing of the case."

We do not find it necessary to discuss the last assignment of error.

The petition is hereby dismissed and the judgment sought to be reviewed is affirmed, with costs against the petitioner. So ordered.

Imperial, Diaz, Moran, and Horrilleno, JJ., concur.

Pakistan International Airlines vs. Opie, 190 SCRA 90 (1990)


PIA VS OPLE
MARCH 28, 2013 ~ VBDIAZ
PAKISTAN INTERNATIONAL AIRLINES (PIA) CORPORATION vs HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON.
VICENTE LEOGARDO, JR., in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG
G.R. No. 61594 September 28, 1990

FACTS: On 2 December 1978, petitioner Pakistan International Airlines Corporation (PIA), a foreign corporation licensed to do
business in the Philippines, executed in Manila 2 separate contracts of employment, one with private respondent Farrales and the
other with private respondent Mamasig. 1 The contracts, which became effective on 9 January 1979, provided in pertinent portion as
follows:

5. DURATION OF EMPLOYMENT AND PENALTY


This agreement is for a period of 3 years, but can be extended by the mutual consent of the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at any time by giving the
EMPLOYEE notice in writing in advance one month before the intended termination or in lieu thereof, by paying the EMPLOYEE
wages equivalent to one months salary.
xxx xxx xxx
10. APPLICABLE LAW:
This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall
have the jurisdiction to consider any matter arising out of or under this agreement.

Farrales & Mamasig (employees) were hired as flight attendants after undergoing training. Base station was in Manila and flying
assignments to different parts of the Middle East and Europe.

roughly 1 year and 4 months prior to the expiration of the contracts of employment, PIA through Mr. Oscar Benares, counsel for and
official of the local branch of PIA, sent separate letters, informing them that they will be terminated effective September 1, 1980.
Farrales and Mamasig jointly instituted a complaint, for illegal dismissal and non-payment of company benefits and bonuses, against
PIA with the then Ministry of Labor and Employment (MOLE).

PIAs Contention: The PIA submitted its position paper, but no evidence, and there claimed that both private respondents were
habitual absentees; that both were in the habit of bringing in from abroad sizeable quantities of personal effects; and that PIA
personnel at the Manila International Airport had been discreetly warned by customs officials to advise private respondents to
discontinue that practice. PIA further claimed that the services of both private respondents were terminated pursuant to the
provisions of the employment contract.

Favorable decision for the respondents. The Order stated that private respondents had attained the status of regular employees
after they had rendered more than a year of continued service; that the stipulation limiting the period of the employment contract to 3
years was null and void as violative of the provisions of the Labor Code and its implementing rules and regulations on regular and
casual employment; and that the dismissal, having been carried out without the requisite clearance from the MOLE, was illegal and
entitled private respondents to reinstatement with full backwages.
Decision sustained on appeal. Hence, this petition for certiorari

ISSUE: (Relative to the subject) Which law should govern over the case? Which court has jurisdiction?

HELD: Philippine Law and Philippine courts

Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of Pakistan as the
applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the
agreement only [in] courts of Karachi Pakistan.
We have already pointed out that the relationship is much affected with public interest and that the otherwise applicable Philippine
laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship.

the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are
Philippine citizens and respondents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing
business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned
flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper
forum for the resolution of contractual disputes between the parties.
Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies
and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to
plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law
of Pakistan are the same as the applicable provisions of Philippine law.
[DOCTRINE OF PROCESSUAL PRESUMPTION, eh?]
Petition denied.
_______
NOTES:

Another Issue: petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private respondents Farrales and
Mamasig, arguing that its relationship with them was governed by the provisions of its contract rather than by the general provisions
of the Labor Code.
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties. The
principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the
contracting parties may establish such stipulations as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. Thus, counter-balancing the principle of autonomy of contracting parties is the equally
general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written
into the contract. Put a little differently, the governing principle is that parties may not contract away applicable provisions of law
especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and
employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of
labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked
by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

FROM ATTY. BAYANI^^


a. Special disqualifications
1) Art. 87, Family Code
2) Arts. 1490 and 1491, CC
3) Art. 1782, CC
3. What they may not stipulate - Art. 1306
a. Contrary to law, e.g.:
1) pactum commissorium (Art. 2088)
2) Pactum leonine (Art. 1799)
3) pactum de non alienado (Art. 2130)
b. Contrary to morals
c. Contrary to good customs
d. Contrary to public order
Cases:

Cui vs. Arellano, 2 SCRA 205 (1961)


Cui vs Arellano University 2 SCRA 205, May 30, 1961

March 15, 2016


Ponente: J. Concepcion
FACTS
Emeritio Cui was granted scholarship by the defendant university on scholarship merit as a student of the College of
Law. Stipulated in the contract for the scholarship grant is the following:
In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another
school without having refunded to the University (defendant) the equivalent of my scholarship cash.

On his last semester on the University, Cui transferred to Abad Santos University where his uncle, the previous dean
and legal adviser of Arellano University, was now the dean of the College of Law of Abad Santos University.

Before taking the bar, Cui petitioned the defendant university for the release of his TOR. The university refused until
Cui refunded the scholarship granted to him totaling the amount of Php 1,033.87, which he did under protest.

Thereafter, he filed for recovery plus damages. The Court of First Instance of Manila ruled in favor or Arellano
University. Hence, this petition for review.

ISSUE
Whether or not the stipulation on waiver of right to transfer without having refunded the scholarship is void.
HELD
Yes. The stipulation contravenes both moral and public policy. Scholarship grants are not for propaganda purposes
but are awards for merits.
Source: Pineda, E. Obligations and Contracts. Central Books Supply, Inc. Quezon City, Philippines.

Cui vs Arellano University


TITLE: Emetrio Cui v Arellano University
CITATION: GR NO. L15127, May 30, 1961 | 112 Phil 135

FACTS:

Emetrio Cui took his preparatory law course at Arellano University. He then enrolled in its
College of Law from first year (SY1948-1949) until first semester of his 4th year. During these
years, he was awarded scholarship grants of the said university amounting to a total of
P1,033.87. He then transferred and took his last semester as a law student at Abad Santos
University. To secure permission to take the bar, he needed his transcript of records from
Arellano University. The defendant refused to issue the TOR until he had paid back the
P1,033.87 scholarship grant which Emetrio refunded as he could not take the bar without
Arellanos issuance of his TOR.

On August 16, 1949, the Director of Private Schools issued Memorandum No. 38 addressing all
heads of private schools, colleges and universities. Part of the memorandum states that the
amount in tuition and other fees corresponding to these scholarships should not be
subsequently charged to the recipient students when they decide to quit school or to transfer to
another institution. Scholarships should not be offered merely to attract and keep students in a
school.

ISSUE: Whether or not Emetrio Cui can refund the P1,033.97 payment for the scholarship grant
provided by Arellano University.

HELD:

The memorandum of the Director of Private Schools is not a law where the provision set therein
was advisory and not mandatory in nature. Moreover, the stipulation in question, asking
previous students to pay back the scholarship grant if they transfer before graduation, is
contrary to public policy, sound policy and good morals or tends clearly to undermine the
security of individual rights and hence, null and void.

The court sentenced the defendant to pay Cui the sum of P1,033.87 with interest thereon at the
legal rate from Sept.1, 1954, date of the institution of this case as well as the costs and
dismissing defendants counterclaim.

EMETERIO CUI vs. ARELLANO UNIVERSITY May 30, 1961 G.R. No. L-15127
DIGEST
Emeterio Cui vs. Arellano University
G.R. No. 15172
May 30, 1961

FACTS: Before the school year 1948-1949 Emeterio Cui took up preparatory law course in the Arellano University.
After Finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from school year
1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the
fourt year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R.
Capistrano, brother of mother of plaintiff, was the dean of college of law and legal counsel of the defendant university.
Plaintiff enrolled for last semester of his law studies in the defendant university but failed to pay tuition fees because
his uncle Dean Francisco R. Capistrano, having severed his connection with defendant and having accepted the
deanship and chancellorship of the college of law of the Abad Santos University graduating from the college of law of
the latter university. Plaintiff, during all the time he has studying law in Defendant University was awarded scholarship
grants, for scholastic merit, so that his semestral tuition fees were retured to him after the end of semester and when
his scholarship grants were awarded to him. The whole amount of tuition fess paid by the plaintiff to defendant and
refunded to him by the latter from the first semester up to and including the first semester of his last year in college of
law or the fourth year, is in total P1,003.87. After Graduating in law from Abad Santos University he applied to take
the bar examination. To secure permission to take the bar, he needed the transcript of his records in defendant
Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until
after he paid back the P1,003.87 which defendant refunded him. As he could not take the bar examination without
those transcripts, plaintiff paid to defendant the said sum under protest.

ISSUE: Whether the provision of the contract between plaintiff and defendant, whereby the former waived his right to
transfer to another school without refunding to the latter the equivalent of his scholarship in cash, is valid or not.

HELD: Memorandum No. 38 issued by the Director of Private Schools provides that When students are given full or
partial scholarship, it is understood that such scholarship are merited and earned. The amount in tuition and other
fees corresponding to These scholarship should not be subsequently charged to recipient students when they decide
to quit school or to transfer to another institution. Scholarship should not be offered merely to attract and keep
students in a school.

Memorandum No. 38 merely incorporates a sound principle of public policy. The defendant uses the scholarship as a
business scheme designed to increase the business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. The practice of awarding scholarship to attract students and
keep them in school is not Good custom nor has it received some kind of social and practical confirmation except in
some private institution as in Arellano University.
Wherefore, the decision appealed from is hereby reversed and another one shall be entered sentencing the
defendant to pay the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954,
date of the institution of this case, as well as the costs, and dismissing the defendants counterclaim. It is so ordered.

Arroyo vs. Bel-win, 36 Phil. 386 (1917)

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-10551 March 3, 1917

IGNACIO ARROYO, plaintiff-appellant,


vs.
ALFRED BERWIN, defendant-appellee.

J. M. Arroyo for appellant.


No appearance for appellee.

CARSON, J.:

The complaint filed in this action is as follows:

1. That both the plaintiff and the defendant are residents of the municipality of Iloilo, Province of
Iloilo, Philippine Islands.
2. That the defendant is a procurador judicial in the law office of the Attorney John Bordman, and
is duly authorized by the court to practice in justice of the peaces courts of the Province of Iloilo.

3. That the defendant, as such procurador judicial, represented Marcela Juanesa in the justice of
the peace court of Iloilo in proceeding for theft prosecuted by the plaintiff Ignacio Arroyo; that said
cause was decided by the said justice of the peace against the accused, and the latter appealed
to the Court of First Instance of Iloilo.

4. That on August 14, 1914, which was the day set for the hearing of the appeal of the said cause
against Marcela Juaneza for theft, Case No. 3120, the defendant requested the plaintiff to agree
to dismiss the said criminal proceeding, and, on August 14, 1914, stipulated with the plaintiff in
the presence of Roque Samson, among other things, that his client Marcela Juaneza would
recognize the plaintiff's ownership in the land situated on Calle San Juan, suburb of Molo,
municipality of Iloilo, Province of Iloilo, where his said client ordered the cane cut, which land and
which cut cane are referred to in the cause for theft above-mentioned; and the defendant
furthermore agreed that the plaintiff should obtain a Torrens title to the said land during the next
term of the court for the trial of cadastral cases, and that the defendant's client, Marcela Juaneza,
would not oppose the application for registration to be filed by the said applicant; provided that
the plaintiff would ask the prosecuting attorney to dismiss the said proceedings filed against
Marcela Juaneza and Alejandro Castro for the crime of theft.

5. That the plaintiff on his part complied with the agreement, and requested the prosecuting
attorney to dismiss the above-mentioned criminal cause; that the latter petitioned the court and
the court did dismiss the said cause; that in exchange the defendant does not wish to comply with
the above-mentioned agreement; that the plaintiff delivered to the defendant for the signature of
the said Marcela Juaneza a written agreement stating that the defendant's said client recognized
the plaintiff's ownership in the described land and that she would not oppose the plaintiff's
application for registration; and that up to the present time, the defendant has not returned to the
plaintiff the said written agreement, notwithstanding the plaintiff's many demands.

Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply with
the agreement by causing the latter's said client Marcela Juaneza to sign the document in which
she recognizes the plaintiff's ownership of the land on which she ordered the cane cut and states
that she will not oppose the plaintiff's application for the registration of the said land, and, further,
by awarding to the plaintiff the costs of the present suit, as well as any other relief that justice and
equity require.

The trial judge dismissed this complaint on the ground of the illegality of the consideration of the alleged
contract, and without stopping to consider any other objection to the complaint than that indicated by the
court below, we are of opinion that the order appealed from must be affirmed.

An agreement by the owner of stolen goods to stifle the prosecution of the person charged with the theft,
for a pecuniary or other valuable consideration, is manifestly contrary to public policy and the due
administration of justice. In the interest of the public it is of the utmost importance that criminals should be
prosecuted, and that all criminal proceedings should be instituted and maintained in the form and manner
prescribed by law; and to permit an offender to escape the penalties prescribed by law by the purchase of
immunity from private individuals would result in a manifest perversion of justice.

Article 1255 of the Civil Code provides that:

The contracting parties may make the agreement and establish the clauses and conditions which
they may dream advisable, provided they are not in contravention of law, morals, or public order.

Article 1275 provides that:


Contracts without consideration or with an illicit one have no effect whatsoever. A consideration is
illicit when it is contrary to law and good morals.

The order entered in the court below should, therefore, be affirmed, with the costs of the instance against
the appellant. So ordered.

Torres, Moreland, Trent and Araullo, JJ., concur.

Filipinas Compama de Seguros vs. Mandanas, 17 SCRA 391 (1966)

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-19638 June 20, 1966

FILIPINAS COMPAIA DE SEGUROS, ET AL., petitioners and appellees,


vs.
HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent and
appellant.
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors and appellees.

Jalandoni and Jamir for petitioner and appellees.


Office of the Solicitor General Arturo A. Alafriz, 1st Assistant Solicitor General Esmeraldo Umali and
Solicitor Comrade T. Limcaoco for intervenors and appellees.

CONCEPCION, C.J.:

This is a special civil action for a declaratory relief Thirty-nine (39) non-life insurance companies instituted
it, in the Court of First Instance of Manila, to secure a declaration of legality of Article 22 of the
Constitution of the Philippine Rating Bureau, of which they are members, inasmuch as respondent
Insurance Commissioner assails its validity upon the ground that it constitutes an illegal or undue restraint
of trade. Subsequently to the filing of the petition, twenty (20) other non-life insurance companies,
likewise, members of said Bureau, were allowed to intervene in support of the petition. After appropriate
proceedings, said court rendered judgment declaring that the aforementioned Article 22 is neither contrary
to law nor against public policy, and that, accordingly, petitioners herein, as well as the intervenors and
other members of the aforementioned Bureau, may lawfully observe and enforce said Article, and are
bound to comply with the provisions thereof, without special pronouncement as to costs. Hence this
appeal by respondent Insurance Commissioner, who insists that the Article in question constitutes an
illegal or undue restraint of trade and, hence, null and void.

The record discloses that on March 11, 1960, respondent wrote to said Bureau, a communication
expressing his doubts of the validity of said Article 22, reading:

xxx xxx xxx

In respect to the classes of insurance specified in the Objects of the Bureau 1 and for Philippine
business only, the members of this Bureau agree not to represent nor to effect reinsurance with,
nor to accept reinsurance from, any Company, Body, or Underwriter licensed to do business in
the Philippines not a Member in good standing of this Bureau.

and requesting that said provision, be, accordingly, repealed. On April 11, 1960, respondent wrote another
letter to the Bureau inquiring on the action taken on the subject-matter of his previous communication. In
reply thereto, the Bureau advised respondent that the suggestion to delete said Article 22 was still under
consideration by a committee of said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised
by respondent that, being an illegal agreement or combination in restraint of trade, said Article should not
be given force and effect; that failure to comply with this requirement would compel respondent to
suspend the license issued to the Bureau; and that the latter should circularize all of its members on this
matter and advise them that "violation of this requirement by any member of the Bureau" would also
compel respondent "to suspend the certificate of authority of the company concerned to do business in
the Philippines". Thereupon, or on May 16, 1961, the present action was commenced.

Briefly, appellant maintains that, since, in the aforementioned Article 22, members of the Bureau "agree
not to represent nor to effect reinsurance with, nor to accept reinsurance from any company, body, or
underwriter, licensed to do business in the Philippines not a member in good standing of the Bureau",
said provision is illegal as a combination in restraint of trade. As early as August 10, 1916, this Court had
had occasion to declare that the test on whether a given agreement constitutes an unlawful machination
or a combination in restraint of trade

... is, whether, under the particular circumstances of the case and the nature of the particular
contract involved in it, the contract is, or is not, unreasonable. (Ferrazini vs. Gsell, 34 Phil. 697,
712-13.)

This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585) and Red Line Transportation Co. vs.
Bachrach Motor Co. (67 Phil. 77), in the following language:

...The general tendency, we believe, of modern authority, is to make the test whether the restraint
is reasonably necessary for the protection of the contracting parties. If the contract is reasonably
necessary to protect the interest of the parties, it will be upheld.

xxx xxx xxx

...we adopt the modern rule that the validity of restraints upon trade or employment is to be
determined by the intrinsic reasonableness of the restriction in each case, rather than by any
fixed rule, and that such restrictions may be upheld when not contrary to the public welfare and
not greater than is necessary to afford a fair and reasonable protection to the party in whose
favor it is imposed. (Ollendorf vs. Abrahamson, 38 Phil. 585.)

...The test of validity is whether under the particular circumstances of the case and considering
the nature of the particular contract involved, public interest and welfare are not involved and the
restraint is not only reasonably necessary for the protection of the contracting parties but will not
affect the public interest or service. (Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil.
77.) (See also, Del Castillo vs. Richmond, 45 Phil. 483.)

The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed provision. The only
evidence on this point is the uncontradicted testimony of Salvador Estrada, Chairman of the Bureau when
it was first organized and when he took the witness stand. Briefly stated, he declared that the purpose of
Article 22 is to maintain a high degree or standard of ethical practice, so that insurance companies may
earn and maintain the respect of the public, because the intense competition between the great number
of non-life insurance companies operating in the Philippines is conducive to unethical practices,
oftentimes taking the form of underrating; that to achieve this purpose it is highly desirable to have
cooperative action between said companies in the compilation of their total experience in the business, so
that the Bureau could determine more accurately the proper rate of premium to be charged from the
insured; that, several years ago, the very Insurance Commissioner had indicated to the Bureau the
necessity of doing something to combat underrating, for, otherwise, he would urge the amendment of the
law so that appropriate measures could be taken therefor by his office; that much of the work of the
Bureau has to do with rate-making and policy-wording; that rate-making is actually dependent very much
on statistics; that, unlike life insurance companies, which have tables of mortality to guide them in the
fixing of rates, non-life insurance companies have, as yet, no such guides; that, accordingly, non-life
insurance companies need an adequate record of losses and premium collections that will enable them to
determine the amount of risk involved in each type of risk and, hence, to determine the rates or premiums
that should be charged in insuring every type of risk; that this information cannot be compiled without full
cooperation on the part of the companies concerned, which cannot be expected from non-members of the
Bureau, over which the latter has no control; and that, in addition to submitting information about their
respective experience, said Bureau members must, likewise, share in the rather appreciable expenses
entailed in compiling the aforementioned data and in analyzing the same. 1wph1.t

We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy either in the objectives
thus sought to be attained by the Bureau, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. The purpose of said Article 22 is not to eliminate
competition, but to promote ethical practices among non-life insurance companies, although, incidentally
it may discourage, and hence, eliminate unfair competition, through underrating, which in itself is
eventually injurious to the public. Indeed, in the words of Mr. Justice Brandeis:

... the legality of an agreement or regulation cannot be determined by so simple a test, as


whether it restrains competition. Every agreement concerning trade, every regulation of trade,
restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the
restraint imposed is such as merely regulates and promotes competition, or whether it is such as
may suppress or even destroy competition. To determine that question the court must ordinarily
consider the facts peculiar to the business to which the restraint is applied; its condition before
and after the restraint was imposed; the nature of the restraint, and its effect, actual or probable.
(Board of Trade of Chicago vs. U.S., 246 U.S. 231, 62 L. ed. 683 [1918].)

Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme Court added:

The restrictions imposed by the Sherman Act are not mechanical or artificial. We have repeatedly
said that they set up the essential standard of reasonableness. Standard Oil Co. vs. United
States, 221 U.S. 1, 55 L. ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D,
734; United States vs. American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They
are aimed at contracts and combinations which "by reason of intent or the inherent nature of the
contemplated acts, prejudice the public interests by unduly restraining competition
or unduly obstructing the course of trade." Nash vs. United States, 229 U.S. 373, 376, 57 L. ed.
1232, 1235, 33 S. Ct. 780; United States vs. American Linseed Oil Co., 262 U.S. 371, 388, 389,
67 L. ed. 1035, 1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they do
not prevent the adoption of reasonable means to protect interstate commerce from destructive or
injurious practices and to promote competition upon a sound basis. Voluntary action to end
abuses and to foster fair competitive opportunities in the public interest may be more effective
than legal processes. And cooperative endeavor may appropriately have wider objectives than
merely the removal of evils which are infractions of positive law.

Hence, the City Fiscal of Manila refused to prosecute criminally in Manila Fire Insurance Association for
following a policy analogous to that incorporated in the provision disputed in this case and the action of
said official was sustained by the Secretary of Justice, upon the ground that:

... combinations among insurance companies or their agents to fix and control rates of insurance
do not constitute indictable conspiracies, provided no unlawful means are used in accomplishing
their purpose (41 C.J. 161; Aetna Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 SW 624; Queen
Ins. Co. vs. State, 86 Tex. 250, 24 SW 397; I Joyce on Insurance, par. 329-a).

Indeed, Mr. Estrada's testimony shows that the limitation upon reinsurance contained in the
aforementioned Article 22 does not affect the public at all, for, whether there is reinsurance or not, the
liability of the insurer in favor of the insured is the same. Besides, there are sufficient foreign reinsurance
companies operating in the Philippines from which non-members of the Bureau may secure reinsurance.
What is more, whatever the Bureau may do in the matter of rate-fixing is not decisive insofar as the public
is concerned, for no insurance company in the Philippines may charge a rate of premium that has not
been approved by the Insurance Commissioner.

In fact, respondent's Circular No. 54, dated February 261 1954, provides:

II. Non-life Insurance company or Group Association of such companies.

Every non-life insurance company or group or association of such companies doing business in
the Philippines shall file with the Insurance Commissioner for approval general basic schedules
showing the premium rates on all classes of risk except marine, as distinguished from inland
marine insurable by such insurance company or association of insurance companies in this
country.

xxx xxx xxx

An insurance company or group of such companies may satisfy its obligation to make such filings
by becoming a member of or subscriber to a rating organization which makes such filing and by
authorizing the insurance commissioner to accept such filings of the rating organization on such
company's or group's behalf.

III. Requiring Previous Application to and Approval by the Insurance Commissioner before any
Change in the Rates Schedules filed with Him Shall Take Effect.

No change in the schedules filed in compliance with the requirements of the next preceding
paragraph shall be made except upon application duly filed with and approved by the Insurance
Commissioner. Said application shall state the changes proposed and the date of their effectivity;
all changes finally approved by the Insurance Commissioner shall be incorporated in the old
schedules or otherwise indicated as new in the new schedules.

IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates.

The Insurance Commissioner shall have power to examine any or all rates established by non-life
insurance companies or group or association of such insurance companies in the country. Should
any rate appear, in the opinion of the Insurance Commissioner, unreasonably high or not
adequate to the financial safety or soundness to the company charging the same, or pre-judicial
to policy-holders, the Commissioner shall, in such case, hold a hearing and/or conduct an
investigation. Should the result of such hearing and/or investigation show that the rate is
unreasonably high or low that it is not adequate to the financial safety and soundness of the
company charging the same, or is prejudicial to policy-holders, the Insurance Commissioner shall
direct a revision of the said rate in accordance with his findings. Any insurance company or group
or association of insurance companies may be required to publish the schedule of rates which
may have been revised in accordance herewith.

The decision of the Insurance Commissioner shall be appealable within thirty days after it has been
rendered to the Secretary of Finance.
V. Prohibiting Non-life Insurance Companies and their Agents from Insuring Any Property in this
Country at a Rate Different from that in the Schedules; Unethical Practices.

No insurance company shall engage or participate in the insurance of any property located in the
Philippines ... unless the schedule of rates under which such property is insured has been filed
and approved in accordance with the provisions of this Circular. ... . (Emphasis ours.)

On the same date, the Constitution of the Bureau, containing a provision substantially identical to the one
now under consideration, was approved. Article 2 of said Constitution reads:

2. OBJECTS

The objects of the Bureau shall be:

a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion, Automobile and
Workmen's Compensation, and whenever applicable, Marine Insurance business.

xxx xxx xxx

c. To file the rates referred to above, tariff rules, and all other conditions or data which may in any
way affect premium rates with the Office of the Insurance Commissioner on behalf of members
for approval. (Emphasis ours.)

In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau applied for the license
required therein, and submitted with its application a copy of said Constitution. On April 28, 1954,
respondent's office issued to the Bureau the license applied for, certifying not only that it had complied
with the requirements of Circular No. 54, but, also, that the license empowered it "to engage in the
making of rates or policy conditions to be used by insurance companies in the Philippines". Subsequently,
thereafter, the Bureau applied for and was granted yearly the requisite license to operate in accordance
with the provisions of its Constitution. During all this time, respondent's office did not question, but
impliedly acknowledged, the legality of Article 22. It was not until March 11, 1960, that it assailed its
validity.

Respondent's contention is anchored mainly on Paramount Famous Lasky Corp. vs. U.S., 282 U.S. 30,
but the same is not in point, not only because it refers to the conditions under which movie film producers
and distributors determine the terms under which theaters or exhibitors may be allowed to run movie films
thereby placing the exhibitors under the control of the producers or distributors and giving the
exhibitors, in effect, no choice as to what films and whose films they will show but, also, because there
is, in the film industry, no agency or officer with powers or functions comparable to those in the Insurance
Commissioner, as regards the regulation of the business concerned and of the transactions involved
therein.

Wherefore, the decision appealed from should be, as it is hereby affirmed, without costs. It is so ordered.

Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
Reyes, J.B.L. and Barrera, JJ., took no part.

Footnotes

1
Fire, earthquake, riot and civil commotion, automobile, Workmen's Compensation and Marine
Insurance.
Bustamante vs. Rosel, 319 SCRA 413 (1999)

Natalia Bustamante vs Rodito and Norma Rosel [G. R. No.


126800. November 29, 1999] 319 SCRA 413 Case Digest

Natalia Bustamante vs Rodito and Norma Rosel


Concept:
Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law on sales.
Facts:
March 8, 1987. Norma Rosel entered in a loan agreement with Natalia Bustamante with the conditions:
1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER
CERTIFICATE OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423) SQUARE
Meters, more or less, situated along Congressional Avenue.
2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00)
PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of EIGHTEEN
(18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a collateral SEVENTY (70)
SQUARE METERS portion, inclusive of the apartment therein, of the aforestated parcel of land, however, in the event
the borrowers fail to pay, the lender has the option to buy or purchase the collateral for a total consideration of TWO
HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed amount and interest therein;
3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while the
borrowers do hereby confess receipt of the borrowed amount.

When the loan was about to mature the respondent proposed to buy the land for P200,000 but the petitioner refused and
offered another residential lot at road. 20 project 8, quezon city. Respondent accepted the lot. The Respondents were
not the owner but entitled as Land developers
March 1, 1989. Petitioner tendered payment for the loan but the respondent refused insisting that the former sign the
document as deed of absolute sale of the collateral
Respondent filed a complaint and sent a letter asking the petitioner to sell the collateral pursuant to the loan
agreement
March 5, 1990. Petitioner filed a petition for consignation and deposited the amount of P153,000 with the City
Treasurer of Quezon City. Petitioner refused the sell the collateral and the respondent cosigned the amount of
P47,500 with the trial court. In arriving at the amount deposited, respondents considered the principal loan of
P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00. The principal loan and the
interest taken together amounted to P152,500.00, leaving a balance of P47,500.00
The trial court ruled in favor of the petitioner and denied the prayer of the respondents in the execution of the deed of
sale
Court of Appeals reversed the decision of the trial court
The SC found no error in the decision of the trial court, petitioner asked for a reconsideration. Respondent filed an
opposition against petitioners motion for reconsideration. They contend that the agreement between the parties was
not a sale with right of re-purchase, but a loan with interest at 18% per annum for a period of two years and if
petitioner fails to pay, the respondent was given the right to purchase the property or apartment for P200,000.00,
which is not contrary to law, morals, good customs, public order or public policy.

Issue: W/ON the petitioner failed to pay the loan at its maturity and is the stipulation in the loan contract valid

Held: No. The respondents refused to accept payment, petitioner consigned the amount with the trial court. We note
the eagerness of respondents to acquire the property given as collateral to guarantee the loan. The sale of the
collateral is an obligation with a suspensive condition. It is dependent upon the happening of an event, without which
the obligation to sell does not arise. Since the event did not occur, respondents do not have the right to demand
fulfillment of petitioners obligation, especially where the same would not only be disadvantageous to petitioner but
would also unjustly enrich respondents considering the inadequate consideration (P200,000.00) for a 70 square
meter property situated at Congressional Avenue, Quezon City.

No, The SC said that the stipulation is void. the intent of the creditor appears to be evident,for the debtor is obliged to
dispose of the collateral at the preagreed consideration amounting to practically the same amount
as the loan. In effect, the creditor acquires the collateral in the event of non-payment of the loan. This is within the
concept of pactum commissorium. Such stipulation is void.

E. Classification
1. According to subject-matter
a. Things
b. Services
2. According to name
a. nominate
b. Innominate-Art. 1307
Case:
Dizon vs. Gaborro, 83 SCRA 688 (1978)

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36821 June 22, 1978

JOSE P. DIZON, petitioner,


vs.
ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial
Administratrix of the Estate of Alfredo G. Gaborro) and the DEVELOPMENT BANK OF THE
PHILIPPINES, respondents.

Leonardo Abola for petitioner.

Carlos J. Antiporda for respondents.

GUERRERO, J.:

Petition for review on certiorari of the decision of the Court Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P.
Dizon, Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial Administratrix
of the Estate of Alfredo G, Gaborro) trial the Development Bank of the Philippines, Defendants-Appellees," affirming
with modification the decision of the Court of First Instance of Pampanga, Branch II in Civil Case No. 2184.

The dispositive portion of the decision sought to be reviewed reads:

IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed


with modification that the plaintiff-appellant has the right to refund or reimburse the
defendant- appellees he sum of P131,831.91 with interest at 8% per annum from October
6, 1959 until full payment, said right to be exercised within one year from the date this
judgment becomes final, with the understanding that, if he fails to do so within the said
period, then he is deemed to have lost his right over the lands forever. With costs against
the appellant. 2

MODIFIED.
The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage',
trial Option to Purchase Real Estate". two instruments executed by trial between Petitioner Jose P. Dizon
trial Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959 constitute in truth trial in fact
an absolute sale of the three parcels of land therein described or merely an equitable mortgage or
conveyance thereof by way of security for reimbursement, refund or repayment by petitioner Jose P.
Dizon of any trial all sums which may have been paid to the Development Bank of the Philippines trial the
Philippine National Bank by Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman
Gaborro as administratrix of the estate of Alfredo G. Gaborro) who had died during the pendency of the
case.

A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate
should account for all the fruits produced trial income received by them from the lands mentioned trial
described in the aforesaid "Deed of Sale with Assumption of Mortgage."

The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner
of the three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, Pampanga with an
aggregate area of 130.58 hectares, as evidenced by Transfer Certificate of Title No. 15679. He
constituted a first mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a
loan in the sum of P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure
his indebtedness to said bank in the amount of P93,831.91.

Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135. On May 26, 1959, the
hinds were sold to the DBP for- P31,459.21, which amount covered the loan, interest trial expenses, trial
the corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On
November 12, 1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the
DBP which deed was recorded in the Office of the Register of Deeds on October 6, 1960.

Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became
interested in the lands of Dizon. Dizon originally intended to lease to Gaborro the property which had
been lying idle for some time. But as the mortgage was already foreclosed by the DPB trial the bank in
fact purchased the lands at the foreclosure sale on May 26, 1959, they abandoned the projected lease.
They then entered into the following contract on October 6, 1959 captioned trial quoted, to wit:

DEED OF SALE WITH ASSUMPTION

OF MORTGAGE

KNOW ALL MEN BY THESE PRESENTS:

This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at the
City of Manila, Philippines, on this 6th day of October, 1959 by trial between

JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial
postal address at Mabalacat, Pampanga, hereinafter referred to as the VENDOR.

ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman,


with residence trial postal address at 46, 7th St., Gilmore Avenue, Quezon City,
hereinafter referred to as the VENDEE,

W I T N E S S E T H: That
WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered by
Transfer Certificate of Title No. 15679 of the land records of Pampanga. situated in the
Municipality of Mabalacat, Province of Pampanga, trial more particularly described trial
bounded as follows:

1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE by
Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot No. 192
trial on the NW by the unimproved provincial road to Magalang. Containing an area of
TWO HUNDRED AND TWENTY ONE THOUSAND ONE HUNDRED SEVENTY TWO
SQUARE METERS (221,172), more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by
a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the unimproved
road to Magalang, on the SW by a road; trial on the NE., by a road trial the Sapang Pritil
Containing an area of NINE HUNDRED SEVENTY EIGHT THOUSAND SEVEN
HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or less.

3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by
Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE HUNDRED
FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE METERS (105,921),
more or less,

WHEREAS, the above-described properties are presently mortgaged (first mortgage) to


the Development Bank of the Philippines (,formerly Rehabilitation Finance Corporation)
to secure the payment of a loan, plus interest, of THIRTY EIGHT THOUSAND PESOS
ONLY (P38,000.00), Philippine currency, as evidenced by a deed of mortgage for- P...
dated ... which deed was ratified trial acknowledged before Notary Public of Manila, Mr. ...
as Doc. No. Page No. Reg. No. Series of 196 ... ;

WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the
Philippine National Bank to secure the payment of a loan of NINETY THREE
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91), Philippine
Currency, plus interest up to August 13, 1957, as evidenced by deed of Mortgage for
P............. dated................... which deed was ratified trial acknowledged before Notary
Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No. Series of
196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE is willing to
purchase the above-described properties for ONE HUNDRED THIRTY ONE THOUSAND
EIGHT HUNDRED THIRTY ONE PESOS & 91 /100 (P131,831.91), Philippine Currency,
under the terms trial conditions herein below set forth;

NOW, THEREFORE, for- trial in consideration of the above premises trial the amount of
ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS &
91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the VENDEE unto the
VENDOR, receipt whereof is hereby acknowledged by the VENDOR to his entire trial full
satisfaction, trial the assumption by the VENDEE of the entire mortgage indebtedness,
both with the Development Bank of the Philippines trial the Philippine National Bank
above mentioned, the VENDOR does by these presents, sell, transfer trial convey, as he
had sold, transferred, trial conveyed, by way of absolute sale, perpetually trial forever,
unto the VENDEE, his heirs, successors trial assigns. above-described properties, with
all the improvements thereon, free from all liens trial encumbrances of whatever nature.
except the pre- existing mortgage obligations with the Development Bank of the
Philippines trial the Philippine National Bank aforementioned. The VENDOR does hereby
warrant title, ownership trial possession over the properties herein sold trial conveyed,
trial binds himself to defend the same from any trial all claimants.

That the VENDEE, does by these presents, assume as he has assumed, under the same
terms trial conditions of the mortgage contracts dated ... and ... of the mortgage
indebtedness of the VENDOR in favor of the Development Bank of the Philippines trial
the Philippine National Bank, respectively, as if the aforesaid documents were personally
executed by the VENDEE trial states trial reiterates all the terms trial conditions stipulated
in said both documents, making them to all intent trial purposes, parts hereof by
reference.

IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their instrumental
witnesses, have signed this deed of the place, date, month trial year first above written.

(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO

Vendor Vendee

Signed in the Presence of:

(Sgd.) (Illegible) (Sgd.) (Illegible)

(Acknowledgment Omitted)

The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate,
trial is in the following wise trial manner:

OPTION TO PURCHASE REAL ESTATE

KNOW ALL MEN BY THESE PRESENTS:

That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman,


with residence trial postal address at 46, 7th St., Gilmore Ave., Quezon City, for- valuable
consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino, married to
Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors and assigns,
the option of repurchasing the following described properties:

TRANSFER CERTIFICATE OF TITLE

NO. 15679, PROVINCE OF PAMPANGA

1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga containing
an area of (211,172) more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga),
containing an area of (978,172) more or less.

3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga
containing an area of (105,921), more or less. which I acquired from the said Jose P.
Dizon by purchase by virtue of that document entitled "Deed of Sale with Assumption of
Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public of
Manila GREGORIO SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series of
1959.

Said option shall be valid trial effective within the period comprises from January, 1965 to
December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED THIRTY
ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (?131,831.91),
Philippine Currency, plus an interest of eight per centum (8%) thereof, per annum. This is
without prejudice at any time to the payment by Mr. Dizon of any partial amount to be
applied to the principal obligation, without any way disturbing the possession and/or
ownership of the above properties since only full payment can effect the necessary
change.

In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing
properties on or the fifth year from the date the execution of this document, the
GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount which
was Paid to Development Bank of the Philippines trial to the Philippine National Bank
together with the interests thereon at the rate of 8% shall be refunded to the undersigned.

Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said
properties, it shall be his duty to first notify the undersigned of the contemplated sale,
naming the price trial the purchaser therefor, trial awarding the first preference in the sale
hereof to the undersigned.

IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila, on
this 6th day of October, 1959.

(Sgd.) ALFREDO G. GABORRO

CONFORME:

(Sgd.) JOSE P. DIZON

SIGNED IN THE PRESENCE OF:

(Acknowledgment Omit)

The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by
Alfredo G. Gaborro to the petitioner. The said amount represents the aggregate debts of the petitioner
with the Development Bank of the Philippines trial the Philippine National Bank.

After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in
question.

On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows:

Sir:

This is with reference to your mortgage lien of P38,000.00 more or less over the
properties more particularly described in TCT No. 15679 of the land records of
Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to inform
you that pursuant to a Deed of Sale with Assumption of Mortgage executed on October 6,
1959 by Jose P. Dizon in my favor, copy of which is hereto attached, the ownership of the
same has been transferred to me subject of course to your conformity to the assumption
of mortgage. As a consequence of the foregoing document, the obligation therefore of
paying your goodselves the total amount of indebtedness has shifted to me

Considering that these agricultural properties have not been under cultivation for- quite a
long time, I would therefore request that, on the premise that the assumption of mortgage
would be agreeable to you, that I be allowed to pay the outstanding obligation, under the
same terms trial conditions as embodied in the original contract of mortgage within ten
(10) years to be divided in 10 equal annual amortizations. I am enclosing herewith a
check in the amount of P3,609.95 representing 10% of the indebtedness of Jose P. Dizon
to show my honest intention in assuming the mortgage obligation to you ...

The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the
offer of Gaborro but said Board required him to pay 20% of the purchase price as initial payment, (Exh. D)
Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional sale of the properties in
consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the
yearly amortization plan at 8% per annum.

On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled:

ASSIGNMENT OF RIGHT OF REDEMPTION

AND ASSUMPTION OF OBLIGATION

KNOW ALL MEN BY THESE PRESENTS:

This instrument, made trial executed by trial between JOSE P. DIZON, married to
Norberta P. Torres, Filipino, of legal age, with residence trial postal address at Mabalacat,
Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G. GABORRO,
married to Pacita de Guzman, likewise of legal age, Filipino, with residence trial postal
address at 46, 7th Street, Gilmore Ave., Quezon City, hereinafter referred to as the
ASSIGNEE,

WITNESSETH:

WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural land
together with all the improvements existing thereon trial more particularly described trial
bounded as follows:

TRANSFER CERTIFICATE OF TITLE NO. 1567

PROVINCE OF PAMPANGA

1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat),


with the improvements thereon, situated in the Municipality of Mabalacat.
Bounded on the NE by Lot No. 187: on the SE. by Lots Nos. 183, 189,
191 trial 192; on the SW. by Lot No. 192; trial on the NW by the
unimproved provincial road to Magalan. Containing an area of two
hundred twenty-one thousand one hundred trial seventy two square
meters (221,172), more or less.

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat),


with the improvements thereon, situated in the Municipality of Mabalacat.
Bounded on the NE. by a road trial Lots Nos. 569, 570 trial 571; on the
SE. by Lot No. 571 trial the unimproved road to Magalan-, on the SW. by
a road; trial on the NW by a road trial the Sapang Pritil Containing an
area of nine hundred seventy eight thousand seven hundred and seven
hundred square meters (978,717), more or less.

3. A parcel of Land (Lot No. 568 of the Cadastral Survey of Mabalacat),


with the improvements thereon, situated in the Municipality of Mabalacat,
Bounded on the NE. by Lot No. 570; and on the SE., SW. and NW. by
roads. Containing an area of one hundred five thousand nine hundred
and twenty-one square meters (105,921), more or less.

WHEREAS, the above described properties were mortgaged with the Rehabilitation
Finance Corporation, now Development Bank of the Philippines, which mortgage has
been foreclosed on May 26, 1959;

AND WHEREAS, the herein Assignor has still the right to redeem the said properties
from the said Development Bank of the Philippines within a period of one (1) year
counted from the date of foreclosure of the said mortgage.

NOW, THEREFORE, for ......................................... trial other valuable considerations,


receipt whereof is hereby acknowledged by the Assignor from the Assignee, The herein
Assignor does hereby transfer trial assign to the herein Assignee, his heirs, successors
trial assigns the aforesaid right to redeem the aforementioned properties above
described.

That with this document the herein Assignor relinquishes any and all rights to the said
properties including the improvements existing thereon.

That the Assignee, by these presents, hereby assumes the obligation in favor of the d
Development Bank of the Philippines, as Paying whatever legal indebtedness the
Assignor has with the d B in connection with the transaction regarding the hove
mentioned Properties subject to the file and conditions that the said Bank may require
and further recognizes the second mortgage in favor Of the Philippine National Bank.

IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of Manila,
Philippines this --------- day of - - - - - -1959.

(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO

Assignor (Assignee)

(Acknowledgment Omitted)

After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He
introduced improvements, cultivated the kinds raised sugarcane and other crops and appropriated the
produce to himself. He will paid the land taxes thereon.

On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro
informing him that he is formally offering reimburse Gaborro Of what he paid to the banks but without,
however, tendering any cash, and demanding an accounting of the income and of the pro contending that
the transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the
petitioner, whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First
Instance of Pampanga, Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage
and the Option to Purchase Real Estate did not express the true intention and agreement bet. between
the parties. Petitioner Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single
transaction that their real agreement was not an absolute e of the d of land but merely an equitable
mortgage or conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any
and all sums which the latter may have paid on account of the mortgage debts in favor of the DBP and
the PNB. Plaintiff prayed that defendant Gaborro be ordered to accept plaintiff's offer to reimburse him of
what he paid to the banks; to surrender the possession of the lands to plaintiff; to make an accounting of
all the fruits, produce, harvest and other income which he had received from the three (3) parcels of land;
and to pay the plaintiff for the loss of two barns and for damages.

In its answer, the DBP specifically denied the material averments of the complaint and stated that on
October 6, 1959, the plaintiff Dizon was no longer the owner of the land in question because the DBP
acquired them at the extrajudicial foreclosure sale held on May 26, 1959, and that the only right which
plaintiff possessed was a mere right to redeem the lands under Act 3135 as amended.

Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that
the "Deed of Sale with Assumption of Mortgage" expresses the true agreement of the parties "fully,
truthfully and religiously" but the Option to Purchase Real Estate" does not express the true intention of
the parties because it was made only to protect the reputation of the plaintiff among his townmates, and
even in the supposition that said option is valid, the action is premature. He also filed a counterclaim for
damages, which plaintiff denied.

The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the
parties was approved by the Court in the following order dated February 22, 1963:

ORDER

At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff; Mr.
Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgillo Fugoso, for the
Development Bank of the Philippines:

The parties brave stipulated on the following facts:

1. That Annex A attached to the complaint is marked Exhibit


A- Stipulation. The parties have admitted the due execution, authenticity and
genuineness of said Exhibit A-Stipulation. This fact has been admitted by all the three
parties.

2. That the defendant Gaborro executed Annex B, which is marked Exhibit B-Stipulation.
This fact has been admitted only between plaintiff and defendant Gaborro.

3. That the three parcels of land referred to in paragraph 3 of the complaint, on or before
October 6, 1959, were subject to a first mortgage lien in favor of the Development Bank
of the Philippines, formerly Rehabilitation Finance Corporation, to secure payment of a
loan obtained by the plaintiff Jose P. Dizon in the original sum of P38,000.00 plus interest,
which has been assumed by defendant Gaborro by virtue of a document, Exhibit A-
Stipulation, and also subject to a second mortgage lien in favor of the Philippine National
Bank to secure the payment of a loan in the sum of P93,831.91 plus interest up to August
30, 1951, which mortgage liens were duly annotated on TCT 15679. This fact has been
admitted by the plaintiff and defendant Gaborro.

4. In respect to the foreclosure of the first mortgage referred to above, it was admit that
the same was foreclosed on May 26, 1959, the second mortgage has not been admitted
nor foreclosed.
5. That the Development Bank of the Philippines admits that the first mortgage referred to
above was foreclosed on May 26, 1959 under the provision,,; of Public Act No- 3135, as
amended.

6. That subsequently the Development Bank and the defendant Gaborro executed a
document entitled Conditional Sale over the same parcels of land referred to in
paragraph 3 of the complaint, and copy thereof will be furnished by the Development
Bank of the Philippines and marked Exhibit C-Stipulation.

7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of Pampanga
in the name of Jose P. Dizon covering the three parcels of land referred to in the
complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of Deeds of
Pampanga was issued in the name of the Development Bank of the Philippines. This fact
has been admitted by all the parties.

8. That after the execution of the deed of conditional sale, certain payments were made
by the defendant Gaborro to the Development Bank, the exact amount to be determined
later and receipts of payments to be also exhibited later. This fact has been admitted by
all the three parties.

9. That since October 6, 1959, the defendant Gaborro has made several payments to the
PNB in the amounts appearing on the receipts which will be shown later, such payments
being made on account of the sum of P38,831.91. The payment was assumed by said -
defendant Gaborro. This fact has been admitted by plaintiff and defendant Gaborro only.

10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has
been and still is in the actual possession f the three parcels of land in question and he is
actually cultivating the same and that the land taxes thereon have been paid by said
defendant Gaborro, the amounts of said taxes appearing on the official receipts to be
shown later. This fact has been admitted by plaintiff and defendant Gaborro only.

11. That since defendant Gaborro took possession of the lands in question, he has been
appropriating all the fruits produced and income of said lands without giving to the plaintiff
any share hereof. This fact has been admitted by plaintiff and defendant Gaborro only.

Let a copy of this order be served upon the plaintiff, defendant Gaborro and the
Development Bank of the Philippines with the understanding that, if, within fifteen (15)
days, none of the parties questions the correctness of The facts set forth above. this
stipulation of facts shall be conclusive upon the parties interested in this case.

Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning.

Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963.

The records disclose that during the pendency of the case in the trial court, motions were filed by the
plaintiff for the appointment of a receiver of the properties but all were denied. plaintiff also reiterated the
same motion before the appellate court which, however, dismissed the same, reserving to him the right to
file in the trial court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the
Court of Appeals in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al."
which the respondent court denied.

After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the
defendant Alfredo G. Gaborro is that the defendant would assume and pay the indebtedness of the
plaintiff to the Development Bank of the Philippines and the Philippine National Bank, and in consideration
therefor, the defendant was given the possession and enjoyment of the properties in question until the
plaintiff shall have reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum.

Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads:

IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption
of Mortgage'(Exhibit A-Stipulation) and 'Option to Purchase Real Estate' (Exhibit B-
Stipulation) are hereby reformed to the extent indicated above. However, since this action
was filed before the period allowed the plaintiff to redeem his property, the prematurity of
this action aside from not being principally alleged in the complaint, deters this Court from
ordering further reliefs and remedies. The counterclaim of the defendant is dismissed.

The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental
complaint having been denied for lack of merit, on June 6, 1970, plaintiff appealed to the Court of
Appeals, which. however, affirmed the decision with the modification that the plaintiff-appellant has the
right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per
annum from October 6, 1959 until full payment, said right to be exercised within one (1) year from the
date the judgment becomes final, with the understanding that, if he fails to do so within the said period,
then he is deemed to have lost his right over the lands forever.

Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals,
hence the present petition for review on certiorari. The petitioner assigns the following errors, to wit:

I. The Court of Appeals, like the lower court, erred in not holding that upon established
facts and undisputed documentary evidence, the deed of sale with assumption of
mortgage (Exhibit A-Stipulation) constitutes an equitable mortgage or conveyance to
secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any
and all sums to the extent of P131,831.91, paid by said defendant in total or partial
satisfaction of petitioner's mortgage debts to the DBP and the PNB. In this connection,
the Court of Appeals erred:

(A) In not finding that the petitioner was the lawful owner of the lands in
question:

(B) In not finding that the deed of sale in question is not a real and
unconditional sale; and

(C) In not holding that the option to purchase real estate (Exhibit B-
Stipulation is conclusive evidence that the transaction in question is in
fact an equitable mortgage.

II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of
Right of Redemption and Assumption of Obligation' is conclusive evidence that the real
transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage' is not an
equitable mortgage. In this connection the said court also erred or at least committed a
grave abuse of discretion:

(A) In not finding that the said deed of assignment is in fact a mere
reiteration of the terms and condition of the deed of sale;
(B) In finding that the price or consideration of The aforesaid assignment.
of right of redemption consisted of 300 cavans of palay delivered by Mrs.
Gaborro to the petitioner; and

(C) In finding that defendant Gaborro purchased the lands in question by


virtue of the aforementioned deed of assignment.

III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of
Alfredo G. Gaborro is under obligation to render an accounting of all the produce, fruits
and other income of the lands in question from October 6, 1959, and to reconvey the said
lands to the herein petitioner. In to connection, the said court also erred:

(A) In not holding that as a mortgagee in possession the Gaborro estate


has the obligation to either render an accounting of the produce or fruits
of the lands, or to pay rentals for the occupation of said lands;

(B) In not finding that the Gaborro estate has the obligations to reconvey
the lands in controversy to the herein petitioner, upon payment of the
balance due from him after deducting either the net value of the produce
or fruits of the Said lands or the rentals thereof,

(C) In not finding that further reliefs or remedies may be granted the
herein petitioner; and

(D) In not ordering the admission of herein petitioners 'Supplemental


Complaint' dated April 30, 1970.

IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and in
not rendering judgment declaring that the deed of sale with assumption of mortgage
(Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro
estate either to render an accounting of all the produce or fruits of the lands in question or
to pay rentals for the occupation thereof, from October 6, 1959; and in not ordering the
estate of Alfredo G. Gaborro to reconvey, transfer and assign unto the petitioner the
aforementioned lands.

The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations
between the parties thereto Pertaining to and involving parcels of land that had already beer foreclosed
and sold extrajudicially, and purchased by the mortgage creditor, a degree party. It becomes, therefore,
necessary to determine the legality of said rights and obligation arising from the foreclosure and e pro.
proceedings only between the two contracting parties to the instruments executed between them but also
in the so far a agreement affects the rights of the degree panty, the purchase Bank.

Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed
and sold, provides that:

Sec. 6. In all cases in which an extrajudicial rule is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or
judgment creditor of e debtor, or any person having a lien on the property subsequent to
the mortgage or deed of trust under which the property is sold, may redeem the same at
any time within the term or one year from and after the date of the sale; and such
redemption shall be governed by the provisions of sections four hundred and sixty-four to
four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these
are not consistent with the provisions of this Act.
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the
property foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of
the property sold, he is entitled to retain it and receive the fruits, the purchaser not being entitled to such
possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43
Phil. 572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959).

A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one
whom he may desire. The right to redeem land sold under execution within 12 months is a property right
and may be sold voluntarily by its owner and may also be attached and sold under execution (Magno v.
Viola and Sotto, 61 Phil. 80).

Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff.
(Section 27, Revised Rules of Court) After the termination of the period of redemption and no redemption
having been made, the purchaser is entitled to a deed of conveyance and to the possession of the
properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser
of land sold at public auction under a writ of execution only has an inchoate right in the property, subject
to be defeated and terminated within the period of 12 months from the date of sale, by a redemption on
the part of the owner. Therefore, the judgment debtor in possession of the property is entitled to remain
therein during the period allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v.
Calimbas, 51 Phil. 355.)

In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon
retained the right to redeem the lands, the possession, use and enjoyment of the same during the period
of redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto
respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-
Stipulation), likewise the same rights that said respondent could acquire in consideration of the latter's
promise to pay and assume the loan of petitioner Dizon with DBP and PNB.

Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land,
firstly, because there was absolutely no money consideration therefor, as admittedly stipulated the sum of
P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was
not actually paid; and secondly, because the properties had already been previously sold by the sheriff at
the foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell
the lands.

In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or
interests under Exh. A-Stipulation, cannot grant to petitioner Dizon more that said rights, such ac the
option Co purchase the lands as stipulated in the document called Option to Purchase Real Estate
(Exhibit B-Stipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or
acquire the full title and ownership of the properties by virtue of the Deed of Sale With Assumption of
Mortgage (Exh. A Stipulation), earlier executed between them which We have ruled out as an absolute
sale. The only legal effect of this Option Deed is the grant to petitioner the right to recover the properties
upon reimbursing respondent Gaborro of the total sums of money that the latter may have paid to DBP
and PNB on account of the mortgage debts, the said right to be exercised within the stipulated 5 years
period.

In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance
here, as well as other relevant facts and circumstances, We agree with the findings of the trial and
appellate courts that the true intention of the parties is that respondent Gaborro would assume and pay
the indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro
was given the possession, the enjoyment and use of the lands until petitioner can reimburse fully the
respondent the amounts paid by the latter to DBP and PNB, to accomplish the following ends: (a)
payment of the bank obligations; (b) make the lands productive for the benefit of the possessor,
respondent Gaborro, (c) assure the return of the land to the original owner, petitioner Dizon, thus
rendering equity and fairness to all parties concerned.
In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the
agreement between petitioner Dizon and respondent Gaborro is one of those inanimate contracts under
Art. 1307 of the New Civil Code whereby petitioner and respondent agreed "to give and to do" certain
rights and obligations respecting the lands and the mortgage debts of petitioner which would be
acceptable to the bank. but partaking of the nature of the antichresis insofar as the principal parties,
petitioner Dizon and respondent Gaborro, are concerned.

Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds
of The parties o a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, and one of the parries may ask for such reformation to the end that such true intention may
be expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil
Code.) It was a mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the
Option to Purchase Real Estate and stand on the literal meaning of the file and stipulations used therein.

The instruments must, therefore, be reformed in accordance with the intention and legal rights and
obligations of the parties the petitioner, the respondent and the Banks. We agree with the reformation
decreed by the trial and appellate courts, but in the sense that petitioner Jose P. Dizon has the right to
reacquire the three parcels of land within the one-year period indicated below by refunding or reimbursing
to respondent Alfredo G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter
has actually paid on account of the principal only, of the loans of Dizon with the DBP and
PNB, excluding the interests and land taxes that may have been paid or may have accrued, on duly
certified financial statements issued by the said banks.

On the issue of the accounting of the fruits, harvests and other income received from the three parcels of
land from October 6, 1959 up to the present, prayed and demanded by Dizon of Gaborro or the Judicial
Administratrix of the latter's estate, We hold that in fairness and equity and in the interests of justice that
since We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any
interests and land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and
PNB, petitioner Dizon in turn is not entitled to an accounting of the fruits, harvests and other income
received by respondent Gaborro from the lands, for certainly, petitioner cannot have both benefits and the
two may be said to offset each other.

By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the
option to purchase the properties which must be exercise within the period from January, 1960 to
December 31, 1965 but which We held to be simply the grant of the right to petitioner Dizon to recover his
properties within the said period, although already expired by reasons and circumstances beyond his
control, petitioner is entitled to a reconveyance of the properties within a reasonable period The period of
one year from the date of the finality of this judgment as laid down by the Court of Appeals for the
exercise of such right by petitioner Dizon appears fair and reasonable and We approve the same.

Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank
which appears to be on a subsisting basis, it is proper to indicate here how petitioner Dizon may exercise
the right to a reconveyance of the properties as herein affirmed, as follows:

(a) Dizon is granted the right to a reconveyance of the properties by reimbursing Gaborro
(or his estate) whatever amounts) the latter has actually paid on account of
the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP and
PNB, respectively, exclusive of the interests that may have accrued thereon or may have
been paid by Gaborro, on the basis of duly certified statements issued by said banks;

(b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with the
Development Bank of the Philippines assumed by Gaborro and on Dizon's original
principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed
reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said
mortgage loans directly to the said banks, in accordance with file mutually agreed upon
with them by Dizon;

(c) In other words, the maximum reconveyance price that Dizon is obligated to pay is the
total sum of ?131,831.91 (the sum total of the principals of his two original loans with the
DBP and PNB), and should the amounts due to the said banks exceed this total of
P131,831.91 (because of delinquent interests and other charges), nothing shall be due
Gaborro by way of reimbursement and Dizon will thereupon step into the shoes of
Gaborro as owner-mortgagor of the properties and directly arrange with the banks for the
settlement of the amounts still due and payable to them, subject to the right of Dizon to
recover such amounts in excess of P131,831.91 from Gaborro by writ of execution in this
case; and

(d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and
other income received by Gaborro from the land while Gaborro in turn is not entitled to
the payment of any interests on any amounts paid by him on account of the principal
loans to the banks nor reimbursement of any interests paid by him to the banks.

WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon
is granted the right within one year from finality of this decision to a reconveyance of the properties in
litigation upon payment and reimbursement to respondent estate of o G. Gaborro of the amounts actually
paid by Gaborro or his estate on account of the principal only of Dizon's original loans with the
Development Bank of the Philippines and Philippine National Bank in and up to the total amount of
P131,831.91, under the terms and conditions set forth in the preceding paragraph with subparagraphs (a)
to (d), which are hereby incorporated by reference as an integral part of this judgment, and upon the
exercise of such right, respondent estate shall forthwith execute the corresponding deed of reconveyance
in favor of petitioner Dizon and deliver possession of the properties to him. Without pronouncement as to
costs.

Teehankee (Chairman), Makasiar, Muoz Palma and Fernandez, JJ., concur.

1) do ut des
2) do ut facia
3) focio ut facias
4) facio ut des
3. According to perfection
a. By mere consent (consensual) - Art. 1315
b. By delivery of the object (real) - Art. 1316
4. According to its relation to other contracts
a. Preparatory
b. Principal
c. Accessory
5. According to form
a. common or informal
b. Special or formal
6. According to purpose
a. Transfer of ownership, e.g., sale
b. Conveyance of use, e.g., commodatum
c. rendition of services, e.g., agency
7. According to the nature of the vinculum produced
a. Unilateral
b. Bilateral
c. Reciprocal
8. According to cause
a. Onerous
b. Gratuitous or lucrative
9. According to risk
a. Commutative
b. Aleatory
F. Stages
1. Preparation
2. Perfection
3. Consummation or death
G. As distinguished from a perfected promise and an imperfect promise (policitacion)
H. With respect to third persons
1. Stipulations in favor of third persons (stipulations pour autrui) - Art. 1311, 2nd par.
Cases:
Florentine vs. Encarnacion, 79 SCRA 192 (1977)

FLORENTINO VS. ENCARNACION, SR.


GUERRERO, September 30, 1977

NATURE
APPEAL from the decision of the Court of First Instance of Ilocos Sur. Arciaga, J.

FACTS
-On May 22, 1964, the petitioners-appellants and the petitioners-appelleed filed with CFI an application for the registration under Act 496 of a parcel of
agricultural land located at Cabugao, Ilocos Sur. The application alleged among other things that the applicants are the common and pro-indiviso owners in fee
simple of the said land with the improvements existing thereon; that to the best of the knowledge and belief, there is no mortgage, hen or encumbrance of any
kind whatsoever affecting said land, nor any other person having any estate or interest thereon, legal or equitable, remainder, reservation at in expectancy; that
said applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, their aunt, Doa Encarnacion Florentino, and Angel
Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores, all surnamed Singson, on
one hand and from Asuncion Florentino on the other.
-After due notice and publication, the Court set the application for hearing. Only the Director of Lands filed an opposition but was later withdrawn so an order of
general default was issued. Upon application of the applicants, the Clerk of Court was commissioned and authorized to receive the evidence of the applicants
and ordered to submit the same for the Court's proper resolution.
-Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O), which states that with respect to the land situated in Barrio Lubong, Dacquel, Cabugao,
Ilocos Sur, the fruits thereof shall serve to defray the religious expenses, was the source of contention in this case (Spanish text). Florentino wanted to include
Exhibit O-1 on the title but the Encarnacions opposed and subsequently withdrawn their application on their shares, which was opposed by the former.
-The Court after hearing the motion for withdrawal and the opposition issued an order and for the purpose of ascertaining and implifying that the products of the
land made subject matter of this land registration case had been used in answering for the payment of expenses for the religious functions specified in the Deed
of Extrajudicial Partition which was no registered in the office of the Register of Deeds from time immemorial; and that the applicants knew of this arrangement
and the Deed of Extrajudicial Partition of August 24, 1947, was not signed by Angel Encarnacion or Salvador Encarnacion, Jr.
-CFI: The self-imposed arrangement in favor of the Church is a simple donation, but is void since the donee has not accepted the donation and Salvador
Encarnacion, Jr. and Angel Encarnacion had not made any oral or written grant at all so the court allowed the religious expenses to be made and entered on the
undivided shares, interests and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
Encarnacion."
-the petitioners-appellants filed their Reply to the Opposition reiterating their previous arguments, and also attacking the jurisdiction of the registration court to
pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such is litigable only in an ordinary action and not proper in a land registration
proceeding.
-The Motion for Reconsideration and of New Trial was denied for lack of merit, but the court modified in highlighting that the donee Church has not showed its
clear acceptance of the donation, and is the real party of this case, not the petitioners-appellants

ISSUES
1. WON the lower own erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just an arrangement stipulation, or grant revocable
at the unilateral option of the co-owners
1.1 WON the lower court erred in finding and concluding that the encumbrance or religious expenses embodied in Exhibit O, the extrajudicial partition
between the co-heirs, is binding only on the applicants Miguel Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio
Florentino, Victorino Florentino, Remedios Encarnacion and Severina Encarnacion
2. WON the lower court erred in holding that rule that the petitioners-appellants are not the real parties in interest, but the Church
3. WON the lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1) as the same was never put to issue and as the
question involved is an adjudication of rights of the parties

HELD
1. YES, the court erred in concluding that the stipulation is just an arrangement stipulation. It cannot be revoked unilaterally.
Ratio The contract must bind both parties, based on the principles (1) that obligation wising from contracts have the force of law between the contracting parties;
and (2) that them must be mutuality between the parties band on their essential equality, to which is repugnant to have one party bound by the contract leaving
the other free therefrom.
Reasoning The stipulation (Exhibit O-1) is part of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the same must bind the
contracting parties thereto and its validity or compliance cannot be left to the will of one of them
- The said stipulation is a stipulation pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor
upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third
person may demand its fulfillment provided that he communicates his acceptance to the obligor before it is revoked.
-Requisites: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract, (2) that the favorable stipulation should not be
conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting parties bears the legal representation or authorization of third
party.
-Valid stipulation pour autrui: it must be the purpose and intent of the stipulating parties to benefit the third person, and it is not sufficient that the third person
may be incidentally benefited by the stipulation. The intention of the parties may be disclosed by their contract. It matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in
determining whether the parties intended to benefit a third person.
-The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church.
- While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third
person must make his acceptance. As a rule, there is no time limit; such third person has all the time until the stipulation is revoked. Here, We find that the
Church accepted (implicitly) the stipulation in its favor before it is sought to be revoked by some of the coowners.

1.1 YES, the court should have found the other co-owners to be bound by the extrajudicial partition.
Ratio Being subsequent purchasers, they are privies or successors in interest; it is axiomatic that contracts are enforceable against the parties and their privies.
Reasoning The co-owners are shown to have given their conformity to such agreement when they kept their peace in 1962 and 1963, having already bought
their respective shares of the subject land but did not question the enforcement of the agreement as against them. They are also shown to have knowledge of
Exhibit O-1 as they had admitted in a Deed of Real Mortgage executed by them.

2. YES
Ratio That one of the parties to a contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need any extensive
discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the third person for
whose benefit the contract was entered into may also demand its fulfillment provided he had communicated his acceptance thereof to the obligor before the
stipulation in his favor is revoked.
Reasoning The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the continued enforcement and fulfillment of
the beneficial stipulation.

3. NO
Ratio The otherwise rigid rule that the jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon summary in
nature, does not extend to cases involving issues properly litigable in other independent suits or ordinary civil actions
Reasoning The peculiarity of the exceptions is based not alone on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also
the following premises: (1) Mutual consent of the parties or their acquiescence in submitting the aforesaid issues for determination by the court in the registration
proceedings; (2) Full opportunity given to the parties in the presentation of their respective sides of the issues and of the evidence in support thereto; (3)
Consideration by the court that the evidence already of record is sufficient and adequate for rendering a decision upon these issues.
-Also, the case has been languishing in our courts for thirteen long years. To require that it be remanded to the lower own for another proceeding under its
general jurisdiction is not in consonance with our avowed policy of speedy justice.

Dispositive IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration Case No. N-310 is affirmed but
modified to allow the annotation of Exhibit O-1 as an encumbrance on the face of the title to be finally issued in favor of all the applicants (herein appellants and
herein appellees) in the registration proceedings below.
No pronouncement as to costs.
SO ORDERED
Coquia vs. Fieldman's Insurance Co., 26 SCRA 178 (1968)

FACTS:
December 1, 1961: Fieldmen's Insurance Company, Inc. issued in favor of the Manila Yellow
Taxicab Co., Inc. (Manila) from December 1, 1961 to December 1, 1962
February 10, 1962: A taxicab of Manila driven by Carlito Coquia, met a vehicular accident at
Mangaldan, Pangasinana and died
The insured filed a claim for P5,000 in which Fieldmen's replied with an offer to pay P2,000 by
way of compromise
The insured rejected it and countered with P4,000
September 18, 1962: Carlito's parents filed a complaint against the Company for collection
The company pleaded lack of cause of action
RTC: ordered to pay the parents
ISSUE: W/N there is a stipulation pour autrui that exempts the general rule that the parents are not a party to
the contract
HELD: YES. RTC affirmed.
There is a stipulation that the Company "will indemnify any authorized Driver who is driving the
Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise,
"indemnify his personal representatives."
typical of contracts pour autrui, this character being made more manifest by the fact that the
deceased driver paid 50% of the corresponding premiums, which were deducted from his weekly
commissions
expressly stipulated and declared that it shall be a condition precedent to any right of action or
suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the
Company's liability hereunder if disputed shall be first obtained
both parties from the inception of their dispute proceeded in entire disregard of the provisions of
the contract relating to arbitration
conduct was as effective a rejection of the right to arbitrate

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-23276 November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-
appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.

Antonio de Venecia for plaintiffs-appellees.


Rufino Javier for defendant-appellant.

CONCEPCION, C.J.:

This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of
Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated
and/or, admitted by the parties at the hearing of the case in the trial court, to dispense with the
presentation of evidence therein.

It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. hereinafter
referred to as the Company issued, in favor of the Manila Yellow Taxicab Co., Inc. hereinafter
referred to as the Insured a common carrier accident insurance policy, covering the period from
December 1, 1961 to December 1, 1962. It was stipulated in said policy that:

The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify
the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against
all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to
any fare-paying passenger including the Driver, Conductor and/or Inspector who is riding in the
Motor Vehicle insured at the time of accident or injury. 1

While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia,
met a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured
filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way
of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company
did not accept it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio
Coquia and Maria Espanueva hereinafter referred to as the Coquias filed a complaint against the
Company to collect the proceeds of the aforementioned policy. In its answer, the Company admitted the
existence thereof, but pleaded lack of cause of action on the part of the plaintiffs.

After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the
plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that
plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company;
and 2) the Insured has not complied with the provisions of the policy concerning arbitration.

As regards the first defense, it should be noted that, although, in general, only parties to a contract may
bring an action based thereon, this rule is subject to exceptions, one of which is found in the second
paragraph of Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. 2

This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of
which may be demanded by a third party for whose benefit it was made, although not a party to the
contract, before the stipulation in his favor has been revoked by the contracting parties. Does the policy in
question belong to such class of contracts pour autrui?

In this connection, said policy provides, inter alia:

Section I Liability to Passengers. 1. The Company will, subject to the Limits of Liability and
under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising
out of the use of Motor Vehicle against all sums which the Insured will become legally liable to
pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver ... who
is riding in the Motor Vehicle insured at the time of accident or injury.

Section II Liability to the Public

xxx xxx xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company
will indemnify any authorized Driver who is driving the Motor Vehicle....

Conditions

xxx xxx xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in
respect of the liability incurred by such person, indemnify his personal representatives in terms of
and subject to the limitations of this Policy, provided, that such representatives shall, as though
they were the Insured, observe, fulfill and be subject to the Terms of this Policy insofar as they
can apply.

8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of
claimants, with or without securing the consent of or prior notification to the Insured, it being the
true intention of this Policy to protect, to the extent herein specified and subject always to the
Terms Of this Policy, the liabilities of the Insured towards the passengers of the Motor Vehicle and
the Public.

Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the
Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise,
"indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity
payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to
protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" in
other words, third parties.

Thus, the policy under consideration is typical of contracts pour autrui, this character being made more
manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums,
which were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias
who, admittedly, are the sole heirs of the deceased have a direct cause of action against the
Company,3 and, since they could have maintained this action by themselves, without the assistance of the
Insured, it goes without saying that they could and did properly join the latter in filing the complaint
herein.4

The second defense set up by the Company is based upon Section 17 of the policy reading:

If any difference or dispute shall arise with respect to the amount of the Company's liability under
this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by
both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one
to be appointed in writing by each of the parties within one calendar month after having been
required in writing so to do by either of the parties and in case of disagreement between the
arbitrators, to the decision of an umpire who shall have been appointed in writing by the
arbitrators before entering on the reference and the costs of and incident to the reference shall be
dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a
condition precedent to any right of action or suit upon this Policy that the award by such arbitrator,
arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first
obtained.

The record shows, however, that none of the parties to the contract invoked this section, or made any
reference to arbitration, during the negotiations preceding the institution of the present case. In fact,
counsel for both parties stipulated, in the trial court, that none of them had, at any time during said
negotiations, even suggested the settlement of the issue between them by arbitration, as provided in said
section. Their aforementioned acts or omissions had the effect of a waiver of their respective right to
demand an arbitration. Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn, 5 it was held:

Another well-settled rule for interpretation of all contracts is that the court will lean to that
interpretation of a contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying
these rules to the tenth clause of this policy, its proper interpretation seems quite clear. When
there is a difference between the company and the insured as to the amount of the loss the policy
declares: "The same shall then be submitted to competent and impartial arbitrators, one to be
selected by each party ...". It will be observed that the obligation to procure or demand an
arbitration is not, by this clause, in terms imposed on either party. It is not said that either the
company or the insured shall take the initiative in setting the arbitration on foot. The company has
no more right to say the insured must do it than the insured has to say the company must do it.
The contract in this respect is neither unilateral nor self-executing. To procure a reference to
arbitrators, the joint and concurrent action of both parties to the contract is indispensable. The
right it gives and the obligation it creates to refer the differences between the parties to arbitrators
are mutual. One party to the contract cannot bring about an arbitration. Each party is entitled to
demand a reference, but neither can compel it, and neither has the right to insist that the other
shall first demand it, and shall forfeit any right by not doing so. If the company demands it, and
the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration;
and if the insured demands an arbitration, and the company refuses to accede to the demand, the
insured may maintain a suit on the policy, notwithstanding the language of the twelfth section of
the policy, and, where neither party demands an arbitration, both parties thereby waive it.6

To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No.
35, St. Louis County vs. A. Hedenberg & Co., Inc. 7 from which we quote:

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893,
this court held that the parties to a construction contract, having proceeded throughout the entire
course of their dealings with each other in entire disregard of the provision of the contract
regarding the mode of determining by arbitration the value of the extras, thereby waived such
provision.

xxx xxx xxx

The test for determining whether there has been a waiver in a particular case is stated by the
author of an exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties
inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct
which might be reasonably construed as showing that they did not intend to avail themselves of
such provision, may amount to a waiver thereof and estop the party charged with such conduct
from claiming its benefits".

xxx xxx xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in
entire disregard of the provisions of the contract relating to arbitration and that neither at any
stage of such dispute, either before or after commencement of the action, demanded arbitration,
either by oral or written demand, pleading, or otherwise. Their conduct was as effective a
rejection of the right to arbitrate as if, in the best Coolidge tradition, they had said, "We do not
choose to arbitrate". As arbitration under the express provisions of article 40 was "at the choice of
either party," and was chosen by neither, a waiver by both of the right to arbitration followed as a
matter of law.

WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against
the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando and Capistrano, JJ., concur.

Constantino vs. Espiritu, 39 SCRA 206 (1971)

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-22404 May 31, 1971


PASTOR B. CONSTANTINO, plaintiff-appellant,
vs.
HERMINIA ESPIRITU, defendant-appellee.

David Guevara for plaintiff-appellant.

DIZON, J.:

This is a direct appeal on a question of law taken by Pastor B. Constantino from an order of the Court of
First Instance of Rizal denying his motion for the admission of his amended complaint in Civil Case No.
5924, entitled "Pastor B. Constantine vs. Herminia Espiritu."

Appellant's complaint alleged, inter alia, that he had, by a fictitious deed of absolute sale annexed thereto,
conveyed to appellee on October 30, 1953, for a consideration of P8,000.00, the two-storey house and
four (4) subdivision lots covered by Transfer Certificate of Title No. 20174 issued by the Register of Deeds
of Rizal, on October 25, 1950 in the name of Pastor B. Constantino, married to Honorata Geukeko with
the understanding that appellee would hold the properties in trust for their illegitimate son, Pastor
Constantino, Jr., still unborn at the time of the conveyance; that thereafter appellee mortgaged said
properties to the Republic Savings Bank of Manila twice to secure payment of two loans, one of
P3,000.00 and the other of P2,000.00, and that thereafter she offered them for sale. The complaint then
prayed for the issuance of a writ of preliminary injunction restraining appellee and her agents or
representatives from further alienating or disposing of the properties, and for judgment ordering her to
execute a deed of absolute sale of said properties in favor of Pastor B. Constantino, Jr., the beneficiary
(who, at the filing of said complaint, was about five years of age), and to pay attorney's fees in the sum of
P2,000.00.

As a result of the conveyance mentioned heretofore, TCT No. 20714 in the name of plaintiff was partially
cancelled and in lieu thereof, TCT No. 32744 was issued by the Register of Deeds of Rizal in the name of
appellee Herminia Espiritu.

On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated no cause of
action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not included as party-
plaintiff, and on the further ground that appellant's cause of action was unenforceable under the Statute of
Frauds.

In his opposition to said motion to dismiss, appellant argued that the Statute of Frauds does not apply to
trustee and cestui que trust as in the case of appellee and her illegitimate child, and that for this reason
appellant would not be barred from proving by parol evidence an implied trust existing under Article 1453
of the Civil Code. On the other hand, in her rejoinder to appellant's opposition, appellee argued that what
the former was invoking in his complaint (Paragraph V, Complaint) was an implied trust under Article 1453
of the Civil Code and not an express trust under Section 3, Rule 3 of the Revised Rules of Court. Finding
the grounds alleged in the motion to dismiss to be meritorious, the trial court dismissed the complaint,
with costs.

Immediately after receiving notice of said order of dismissal, appellant filed a motion for the admission of
an amended complaint, attaching thereto a copy hereof, the amendment consisting mainly of the inclusion
of the minor, Pastor Constantino, Jr. as co-plaintiff. The amended complaint further prayed for the
appointment of appellant as said minor's guardian ad litem. An opposition thereto was filed on the ground
that the amendment aforesaid was not an inclusion but a substitution of the party plaintiff. As the latter
had no interest whatsoever in the subject matter of the case, it was argued that the substitution was not
allowed in this jurisdiction. Appellant's answer to appellee's opposition alleged that, as the ground relied
upon in the said opposition was purely technical, even the substitution of the party plaintiff should be
allowed under Section 2, Rule 17 of the Rules of Court. Thereafter the lower court issued the appealed
order denying appellant's motion for the admission of his amended complaint. Hence, the instant direct
appeal.

The original as well as the amended complaint mentioned above allege that the sale made by appellant
Constantino in favor of appellee of the properties described in said pleadings was subject to the
agreement that the vendee would hold them in trust for their at that time already conceived but unborn
illegitimate child; that the vendee violated this agreement, firstly, by subjecting them to two different
contracts of mortgage, and later by trying to sell them, this being not only in violation of the aforesaid
agreement but prejudicial to the cestui que trust; that the action was commenced to compel the vendee to
comply with their agreement by executing the corresponding deed of conveyance in favor of their minor
son, and to desist from further doing any act prejudicial to the interests of the latter.

It appears then that, upon the facts alleged by appellant, the contract between him and appellee was a
contract pour autrui, although couched in the form of a deed of absolute sale, and that appellant's action
was, in effect, one for specific performance. That one of the parties to a contract is entitled to bring an
action for its enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the
other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in
the sense that the third person for whose benefit the contract was entered into may also demand its
fulfillment provided he had communicated his acceptance thereof to the obligor before the stipulation in
his favor is revoked.

It appearing that the amended complaint submitted by appellant to the lower court impleaded the
beneficiary under the contract as a party co-plaintiff, it seems clear that the three parties concerned
therewith would, as a result, be before the court and the latter's adjudication would be complete and
binding upon them.

The ruling in the case of Echaus vs. Gan, 55 Phil. 527 involving facts similar to the ones before us is of
obvious application to the latter. We quote the following pertinent portions of our decision in said case:

This action was instituted in the Court of First Instance of Occidental Negros by
Adoracion Rosales de Echaus, assisted by her husband Enrique Echaus, for the purpose
of obtaining a judicial order requiring the defendant Maria Gan, as administratrix of the
estate of her deceased husband, Manuel Gay Yulingco, as well as the heirs of said
decedent, to execute in due form a contract, with appropriate description of the real
property involved, in conformity with the terms of an agreement dated September 3,
1927, executed by the deceased Manuel Gay Yulingco, in life, and Enrique Echaus, one
of the plaintiffs in the case (Exhibit A). To this action the defendants interposed a general
answer and cross-complaint, in the latter of which they sought a decree annulling the
contract Exhibit A as excessively onerous and illegal. Upon hearing the cause the trial
court absolved the plaintiffs from the cross-complaint and gave judgment in favor of the
plaintiffs upon the complaint, requiring the defendants, within thirty days from the date of
the finality of the decision, to execute before a notary public and deliver to the plaintiffs a
contract similar in terms to that indicated in the Exhibit A but containing, in addition, a
description of the real property involved, in such form as would enable the plaintiffs to
procure said contract to be inscribed on the certificate of title corresponding to said
property, with costs against the defendants. From this judgment the defendants appealed.

xxx xxx xxx

The contract in question, Exhibit A, on which this action is based, was executed by
Manuel Gay Yulingco and Enrique Echaus, and although the contract binds Yulingco to
pay to Adoracion Rosales de Echaus, the wife of Enrique Echaus, the sum of fifty
centavos for each picul of sugar that may be produced upon the two haciendas covered
by the contract during the fourteen years beginning with the crop for 1927-1928,
nevertheless this action is not instituted by the nominal beneficiary, Adoracion Rosales de
Echaus, directly for the purpose of obtaining the benefit which said contract purports to
confer upon her. The purpose of the action is to compel the defendants to execute a
contract pursuant to the tenor of the contract Exhibit A, but containing an adequate
description of the property contained in the two haciendas, for the purpose of enabling
Echaus to procure the annotation of said contract on the Torrens certificates of title. It is
therefore evident that, technically speaking, the proper person to bring this action is
Enrique Echaus, the person with whom the contract was made by Yulingco. It is,
nevertheless, equally obvious that the wife of Enrique Echaus is a party in interest, and
she is certainly a proper, if not an entirely necessary party to the action. It results that
there is really no improper joinder of parties plaintiff.

Whether the contract of sale entered into between appellant and appellee was as claimed and the
amended complaint subject to the agreement that appellee would hold the properties in trust for their
unborn child is a question of fact that appellee may raise in her answer for the lower court to determine
after trial. On the other hand, the contention that the contract in question is not enforceable by action by
reason of the provisions of the Statute of Frauds does not appear to be indubitable, it being clear upon
the facts alleged in the amended complaint that the contract between the parties had already been
partially performed by the execution of the deed of sale, the action brought below being only for the
enforcement of another phase thereof, namely, the execution by appellee of a deed of conveyance in
favor of beneficiary thereunder.

WHEREFORE, the appealed order is hereby set aside and the case is remanded to the lower court for
further proceedings in accordance with law.

Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Villamor and Makasiar, JJ.,
concur.

Makalintal, J., concurs in the result.

Integrated Packaging Corp. vs. CA, G.R. No. 115117, June 8, 2000.
G.R. No. 115117 June 8, 2000

Lessons Applicable: Kinds of Damage (Torts and Damages)


Laws Applicable: Article 1583 of the Civil Code
FACTS:

May 5, 1978: Integrated Packaging Corp agreed to deliver to Fil-anchor paper co., inc. 3,450 reams of
printing paper. Materials were to be paid within 30-90 days
June 7, 1978: Integrated entered into a contract with Philippine Appliance Corporation (Philacor) to print
three volumes of "Philacor Cultural Books"
July 30, 1979: only 1,097 out of the 3,450 had been delivered so it wrote to Fil-anchor that delay will
prejudice them
July 23, 1981: Fil-anchor delivered amounting to P766,101.70 of printing paper
August 27, 1981: Integrated paid P97,200.00 which was applied to its back accounts covered by delivery
invoices dated September 29-30, 1980 and October 1-2, 1980
Integrated entered into an additional printing contract with Philacor but it failed to comply
so Philacor demanded compensation for the delay and damage it suffered on account of Integrated's failure
Fil-anchor filed a collection suit of P766,101.70 against Integrated representing unpaid purchase price of
printing paper bought on credit
By way of counterclaim, Fil-anchor alleged the delivery was short of 2,875 reams so it suffered actual
damages and failed to realize expected profits and that complaint was prematurely filed
RTC: Integrated ordered to pay Fil-anchor P27,222.60 as compensatory and actual damages after
deducting P763,101.70 for the value of materials received, P100K as moral damages, P30K for attorney's fees
and cost of suit. However, the counterclaim is also meritorious - Integrated could have sold books to Philacor
and realized profit of P790,324.30 for which the award of moral damages was justified
CA: reversed and set aside the judgment of the trial court ordered to pay Fil-anchor P763,101.70 for unpaid
printing paper and deleted the award of P790,324.30 as compensatory damages as well as the award of moral
damages and attorney's fees, for lack of factual and legal basis
ISSUE: W/N Integrated should be awarded compensatory and moral damages.

HELD: YES. CA affirmed

suspension of its deliveries to Integrated whenever the latter failed to pay on time, as in this case, is legally
justified under the second paragraph of Article 1583 of the Civil Code hence the Fil-anchor did not violate the
order agreement
Fil-anchor is not a party to the agreement between Philacor neither is it a contract pour autrui so no direct
bearing
indemnification for damages comprehends not only the loss suffered, that is to say actual damages
(damnum emergens), but also profits which the obligee failed to obtain, referred to as compensatory damages
(lucrum cessans). However, to justify a grant of actual or compensatory damages, it is necessary to prove with a
reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the
injured party, the actual amount of loss.
trial court in arriving at the amount are mere estimates or self-serving claim of unrealized profitprepared by
Integrated
deletion of the award of moral damages is proper, since private respondent could not be held liable for
breach of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad
faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligation. Finally, since the award of moral damages is eliminated, so must the award for attorney's fees be
also deleted.

2. Possession of the object of contract by third persons - Art. 1312


3. Creditors of the contracting parties - Art. 1313
4. Interference by third persons-Art. 1314
Cases:
Daywalt vs. La Corporacion de los Padres Agustinos Recoletos, 39 Phil. 587 (1919)
(See attached file)

DAYWALT V. CORPORACIO DE PP AGUSTINO

Emergency Recitation:
Daywalt seeks to recover damages on ground that defendant corporation, for own selfish
purposes, induces Teodorica to refrain from performance of contract of sale and withhold
delivery of Torrens title. Cause of action: liability from wrongful interference.
Issue: Whether a person who is not a party to a contract for the sale of land
makes himself liable for damages to the vendee by colluding with the vendor
in the effort to resist an action for specific performance
The Court held the defendants liable for the use and occupation of the land
and for its act of inducing the old lady to renege on her contract with the
petitioner, but its liability shall be only equal to that of the principal
contracting party.
Malice is not essential agreement: It is enough if wrongdoer, having knowledge of existence
of contract relation, in bad faith sets about to break it up.
No liability if disinterested advice. Liable if advice is for indirect purpose of benefiting
defendant at expense of plaintiff and contract broken because of the advice. (Doctrine under
Lumley v. Gye requires interference by unlawful means.)
Court held that it is enough that defendant used property with notice that plaintiff had a prior
and better right liability of stranger to contract must not be more than liability of person
who actually breached contract
Special damages awarded only when external conditions present, apart from actual terms

FACTS:
Teodorica obligated herself to convey a tract of land to Daywalt.
1902 contract: A deed should be executed as soon as Endencias title to the land should be
perfected.

A decree recognizing the right of Teodorica as owner was entered but the Torrens certificate
was not issued until later.
1908 contract: Upon receiving the Torrens title to the land, Teodorica will deliver the same to
the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in
San Francisco, where it was to be delivered to the plaintiff upon payment of balance.
The Torrens certificate was issued to Teodorica, but it was found by official
survey that the area of the tract inclosed in the boundaries stated in the
contract was about 1.248 hectares of 452 hectares as stated in the contract.
Because of this, Teodorica became reluctant to transfer the whole tract to the
purchaser.
This attitude of hers led to litigation in which Daywalt finally succeeded in
obtaining a decree for specific performance.
La Corporacion de los Padres Recoletos, is a religious corporation. It was the
owner of another estate on the same island immediately adjacent to the land
which Teodorica had sold to Daywalt
Their representative, Father Sanz, had long been well acquainted with
Teodorica and exerted over her an influence and ascendency due to his
religious character
Father Sanz was fully aware of the existence of the contract of 1902 contract
and 1908 contract.
When the Torrens certificate was finally issued in 1909 in favor of Teodorica,
she delivered it for safekeeping to the defendant corporation
As Teodorica still retained possession of said property Father Sanz entered
into an arrangement with her whereby large numbers of cattle belonging to
the defendant corporation were pastured upon said land during 1909 to
1914.
Daywalt seeks to recover from the defendant corporation the sum of
P500,000, as damages, on the ground that said corporation, for its own
selfish purposes, unlawfully induced Teodorica to refrain from the
performance of her contract for the sale of the land in question and to
withhold delivery to the plaintiff of the Torrens title.
The cause of action here stated is based on liability derived from the
wrongful interference of the defendant in the performance of the contract
between the plaintiff and Teodorica Endencia; and the large damages laid in
the complaint were, according to the proof submitted by the plaintiff,
incurred as a result of a combination of circumstances of the following
nature:
o In 1911, it appears, the plaintiff, as the owner of the land which he
had bought from Teodorica Endencia entered into a contract with S. B.
Wakefield, of San Francisco, for the sale and disposal of said lands to a
sugar growing and milling enterprise, the successful launching of which
depended on the ability of Daywalt to get possession of the land and
the Torrens certificate of title.
o Teodorica Endencia seems to have yielded her consent to the
consummation of her contract, but the Torrens title was then in the
possession of Padre Juan Labarga in Manila, who refused to deliver the
document.
o Teodorica also was in the end contract with the plaintiff, with the result
that the plaintiff was kept out of possession until the Wakefield project
for the establishment of a large sugar growing and milling enterprise
fell through.
In the light of what has happened in recent years in the sugar industry, we
feel justified in saying that the project above referred to, if carried into
effect, must inevitably have proved a great success.

ISSUES:
1. Whether a person who is not a party to a contract for the sale of land
makes himself liable for damages to the vendee, beyond the value of
the use and occupation, by colluding with the vendor and
maintaining him in the effort to resist an action for specific
performance. NO
2. Whether the damages which the plaintiff seeks to recover under this head
are too remote and speculative to be the subject of recovery. YES

HELD:
The judgment of the trial court should be affirmed, and it is so ordered, with costs against the
appellant.

RATIO:
1st issue
While it was true that the circumstances pointed to an entire sympathy on the part of the
defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to
the land, the fact that its officials may have advised her not to carry the contract into effect
would not constitute actionable interference with such contract.
According to the English and American authorities, no question can be made as to the liability
to one who interferes with a contract existing between others by means which, under known
legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by
force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance
or riot, the person using such unlawful means is, under all the authorities, liable for the
damage which ensues. (Doctrine under Lumley v. Gye)
Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil.
Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in
question to Daywalt, might have been enjoined by the latter from using the property for
grazing its cattle thereon. That the defendant corporation is also liable in this action for the
damage resulting to the plaintiff from the wrongful use and occupation of the property has
also been already determined. But it will be observed that in order to sustain this liability it is
not necessary to resort to any subtle exegesis relative to the liability of a stranger to a
contract for unlawful interference in the performance thereof. It is enough that defendant
use the property with notice that the plaintiff had a prior and better right.
Article 1902 of the Civil Code declares that any person who by an act or omission,
characterized by fault or negligence, causes damage to another shall be liable for the damage
so done. Ignoring so much of this article as relates to liability for negligence, we take the rule
to be that a person is liable for damage done to another by any culpable act; and by
"culpable act" we mean any act which is blameworthy when judged by accepted
legal standards. The idea thus expressed is undoubtedly broad enough to include any
rational conception of liability for the tortious acts likely to be developed in any society.
Article 1257 of the Civil Code declares that contracts are binding only between the parties and
their privies. In conformity with this it has been held that a stranger to a contract has no right
of action for the nonfulfillment of the contract except in the case especially contemplated in
the second paragraph of the same article.
If the two antagonistic ideas which we have just brought into juxtaposition are
capable of reconciliation, the process must be accomplished by distinguishing clearly
between the right of action arising from the improper interference with the contract
by a stranger thereto, considered as an independent act generate of civil liability,
and the right of action ex contractu against a party to the contract resulting from the
breach thereof.
Whatever may be the character of the liability which a stranger to a contract may incur by
advising or assisting one of the parties to evade performance, there is one proposition upon
which all must agree. This is, that the stranger cannot become more extensively liable
in damages for the nonperformance of the contract than the party in whose behalf
he intermeddles. To hold the stranger liable for damages in excess of those that could be
recovered against the immediate party to the contract would lead to results at once grotesque
and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the
contract, it is obvious that the liability of the defendant corporation, even admitting that it has
made itself coparticipant in the breach of the contract, can in no even exceed hers.

2nd issue:
The extent of the liability for the breach of a contract must be determined in the light of the
situation in existence at the time the contract is made; and the damages ordinarily
recoverable are in all events limited to such as might be reasonable are in all events limited to
such as might be reasonably foreseen in the light of the facts then known to the contracting
parties.
Ordinary damages is found in all breaches of contract where the are no special circumstances
to distinguish the case specially from other contracts. In all such cases the damages
recoverable are such as naturally and generally would result from such a breach, "according to
the usual course of things."
Special damage, on the other hand, is such as follows less directly from the breach than
ordinary damage. It is only found in case where some external condition, apart from the
actual terms to the contract exists or intervenes, as it were, to give a turn to affairs and to
increase damage in a way that the promisor, without actual notice of that external condition,
could not reasonably be expected to foresee.
Where the damage which a plaintiff seeks to recover as special damage is so far speculative as
to be in contemplation of law remote, notification of the special conditions which make that
damage possible cannot render the defendant liable therefor.
To bring damages which would ordinarily be treated as remote within the category of
recoverable special damages, it is necessary that the condition should be made the subject of
contract in such sense as to become an express or implied term of the engagement.
In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica
Endencia; and what has been said suffices in our opinion to demonstrate that the damages
laid under the second cause of action in the complaint could not be recovered from her:
o first, because the damages in question are special damages which were not within
contemplation of the parties when the contract was made, and
o secondly, because said damages are too remote to be the subject of recovery. This
conclusion is also necessarily fatal to the right of the plaintiff to recover such damages
from the defendant corporation, for, as already suggested, by advising Teodorica not
to perform the contract, said corporation could in no event render itself more
extensively liable than the principle in the contract.

So Ping bun vs. CA, 314 SCRA 751 (1999)

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 120554 September 21, 1999

SO PING BUN, petitioner,


vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG, respondents.

QUISUMBING, J.:

This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10, 1994, and the
Resolution 2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court affirmed the decision of the Regional
Trial Court of Manila, Branch 35, except for the award of attorney's fees, as follows:

WHEREFORE, foregoing considered, the appeal of respondent-appellant So Ping Bun


for lack of merit is DISMISSED. The appealed decision dated April 20, 1992 of the court a
quo is modified by reducing the attorney's fees awarded to plaintiff Tek Hua Enterprising
Corporation from P500,000.00 to P200,000.00. 3

The facts are as follows:

In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements
with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises
located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to
store its textiles. The contracts each had a one-year term. They provided that should the lessee continue
to occupy the premises after the term, the lease shall be on a month-to-month basis.

When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the
premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading
Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.

So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So
Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.

On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of
the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20%
effective January 1, 1990, upon other lessees' demand. Again on December 1, 1990, the lessor
implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI
warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the
lessee's part, and agreement to the termination of the lease. Private respondents did not answer any of
these letters. Still, the lease contracts were not rescinded.

On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows:

March 1, 1991

Mr. So Ping Bun

930 Soler Street

Binondo, Manila

Dear Mr. So,

Due to my closed (sic) business associate (sic) for three decades with your late
grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed you temporarily
to use the warehouse of Tek Hua Enterprising Corp. for several years to generate your
personal business.

Since I decided to go back into textile business, I need a warehouse immediately for my
stocks. Therefore, please be advised to vacate all your stocks in Tek Hua Enterprising
Corp. Warehouse. You are hereby given 14 days to vacate the premises unless you have
good reasons that you have the right to stay. Otherwise, I will be constrained to take
measure to protect my interest.

Please give this urgent matter your preferential attention to avoid inconvenience on your
part.

Very truly yours,

(Sgd) Manuel C. Tiong

MANUEL C. TIONG

President 4
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI
in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok,
he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to
petitioner's request. The lease contracts in favor of Trendsetter were executed.

In the suit for injunction, private respondents pressed for the nullification of the lease contracts between
DCCSI and petitioner. They also claimed damages.

After trial, the trial court ruled:

WHEREFORE, judgment is rendered:

1. Annulling the four Contracts of Lease (Exhibits A, A-1


to A-3, inclusive) all dated March 11, 1991, between
defendant So Ping Bun, doing business under the name
and style of "Trendsetter Marketing", and defendant Dee
C. Chuan & Sons, Inc. over the premises located at Nos.
924-B, 924-C, 930 and 930, Int., respectively, Soler
Street, Binondo Manila;

2. Making permanent the writ of preliminary injunction


issued by this Court on June 21, 1991;

3. Ordering defendant So Ping Bun to pay the aggrieved


party, plaintiff Tek Hua Enterprising Corporation, the sum
of P500,000.00, for attorney's fees;

4. Dismissing the complaint, insofar as plaintiff Manuel


C. Tiong is concerned, and the respective counterclaims
of the defendant;

5. Ordering defendant So Ping Bun to pay the costs of


this lawsuit;

This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising
Corporation and defendant Dee C. Chuan & Sons, Inc. to negotiate for the renewal of
their lease contracts over the premises located at Nos. 930, 930-Int., 924-B and 924-C
Soler Street, Binondo, Manila, under such terms and conditions as they agree upon,
provided they are not contrary to law, public policy, public order, and morals.

SO ORDERED. 5

Petitioner's motion for reconsideration of the above decision was denied.

On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for reconsideration, the
appellate court modified the decision by reducing the award of attorney's fees from five hundred thousand
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.

Petitioner is now before the Court raising the following issues:

I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING


THE TRIAL COURT'S DECISION FINDING SO PING BUN
GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN AWARDING
ATTORNEY'S FEES OF P200,000.00 IN FAVOR OF PRIVATE
RESPONDENTS.

The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous
conduct, particularly unlawful interference with contract. We have to begin, obviously, with certain
fundamental principles on torts and damages.

Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or
compensation awarded for the damage suffered. 6 One becomes liable in an action for damages for a
nontrespassory invasion of another's interest in the private use and enjoyment of asset if (a) the other has property
rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the
defendant's conduct is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or
unintentional and actionable under general negligence rules. 7

The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the
third person of the existence of contract; and (3) interference of the third person is without legal
justification or excuse. 8

A duty which the law of torts is concerned with is respect for the property of others, and a cause of
action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the
other of his private
property. 9 This may pertain to a situation where a third person induces a party to renege on or violate his
undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's property right. Clearly,
and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in
the instant case.

Authorities debate on whether interference may be justified where the defendant acts for the sole purpose
of furthering his own financial or economic interest. 10 One view is that, as a general rule, justification for
interfering with the business relations of another exists where the actor's motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe
that it is not necessary that the interferer's interest outweigh that of the party whose rights are invaded, and that an
individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious
motives are negatived, for he acts in self-protection. 11 Moreover justification for protecting one's financial position
should not be made to depend on a comparison of his economic interest in the subject matter with that of others. 12 It
is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. 13

As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of a contract, and
the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a party cannot be
a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it
cannot be said that he is an officious or malicious intermeddler. 15

In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to
his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of
respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or
malice on him.

Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces another to
violate his contract shall be liable for damages to the other contracting party." Petitioner argues that
damage is an essential element of tort interference, and since the trial court and the appellate court ruled
that private respondents were not entitled to actual, moral or exemplary damages, it follows that he ought
to be absolved of any liability, including attorney's fees.

It is true that the lower courts did not award damages, but this was only because the extent of damages
was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or impossible to
determine the extent of damage and there was nothing on record to serve as basis thereof. In that case
we refrained from awarding damages. We believe the same conclusion applies in this case.

While we do not encourage tort interferers seeking their economic interest to intrude into existing
contracts at the expense of others, however, we find that the conduct herein complained of did not
transcend the limits forbidding an obligatory award for damages in the absence of any malice. The
business desire is there to make some gain to the detriment of the contracting parties. Lack of malice,
however, precludes damages. But it does not relieve petitioner of the legal liability for entering into
contracts and causing breach of existing ones. The respondent appellate court correctly confirmed the
permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing,
without awarding damages. The injunction saved the respondents from further damage or injury caused
by petitioner's interference.

Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is allowed
under the circumstances provided for in Article 2208 of the Civil Code. 16 One such occasion is when the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest. 17 But we have consistently held that the award of considerable damages should have clear factual and legal
bases. 18 In connection with attorney's fees, the award should be commensurate to the benefits that would have been
derived from a favorable judgment. Settled is the rule that fairness of the award of damages by the trial court calls for
appellate review such that the award if far too excessive can be reduced. 19 This ruling applies with equal force on the
award of attorney's fees. In a long line of cases we said, "It is not sound policy to place in penalty on the right to
litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open
the door of temptation to the opposing party and his counsel to swell the fees to undue proportions." 20

Considering that the respondent corporation's lease contract, at the time when the cause of action
accrued, ran only on a month-to-month basis whence before it was on a yearly basis, we find even the
reduced amount of attorney's fees ordered by the Court of Appeals still exorbitant in the light of prevailing
jurisprudence. 21Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent
appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award or
attorney's fees in favor of private respondent corporation.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award of
attorney's fees is reduced from two hundred thousand (P200,000.00) to one hundred thousand
(P100,000.00) pesos. No pronouncement as to costs. 1wphi1.nt

SO ORDERED.

Bellosillo, Mendoza and Buena, JJ., concur.

So Ping Bun vs Court of Appeals 314 SCRA 752, September 21, 1999

March 12, 2016


Ponente: J. Quisimbing

FACTS

Tek Hua Trading Co. entered into lease agreement with the lessor Dee C. Chuan and Sons Inc. (DCCSI). When Tek Hua Trading
Co. was later dissolved and the original members built Tek Hua Trading Corp. The grandson of the partners named So Ping Bun,
after the death of his grandfather, continued occupying the warehouse for his own textile business.

In a letter to petitioner, the owner of Tek Hua Trading Corp. informed the petitioner to vacate the warehouse. Petitioner refused and
requested formal contracts of lease with DCCSI to which it acceded and a new lease of contract in favor of Trendsetter was
executed.
Tek Hua Enterprises Corp. then petitioned the court for injuction, nullification of the lease contract between DCCSI and So Ping Bun
and damages, to which the Regional Trial Court of Manila Branch 35 granted and was affirmed by the Court of Appeals.

Hence, this petition for certiorari.

ISSUE

Whether or not So Ping Bun acted as intermeddler in violation of Article 1314 of the New Civil Code.

HELD

Yes.

Damage is the loss, hurt or harm which results from injury and damages are the recompense or compensation for the damage
suffered.

A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be
predicated upon unlawful interference by one person of the enjoyment by the other of his private property. This may pertain to a
situation where a third person induces a party to renege on or violate his undertaking under a contract. Such is a violation of Article
1314 which states:

Article 1314

March 25, 2016


Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

Kung sinumang hindi partido sa kontrata ang manghihikayat na labagin ng partido sa kontrata ang laman ng kontrata, siya ay
mananagot sa danyos sa naperhuwisyong tao na partido sa kontrata.

Discussion:

Interference with Contractual Relations- This article is known in the law of torts as interference with contractual relations. The liability
incurred by the intermeddler cannot be more than the liability incurred by the party in whose behalf he intermeddled. Otherwise, it
will result to injustice.

Elements (in torts):

1. Existence of a valid contract


2. Knowledge on the part of the third person of the existence of the contract
3. Interference of the third person without legal justification or excuse (the third person acted with malice, or
was driven by purely impious reasons)

Nature:

1. The liability of the intermeddler and the person for whom he intermeddled is solidary. This is because the act
is a quasi-delict and in quasi-delict, the responsibility is solidary.
2. Malice is essential to make the intermeddler liable.

Requisites (in interference in contractual relations)


1. There must be an existing valid contract between two or more persons
2. The third person is aware of the existence of the contract
3. The third person interferes by inducing a party to violate the contract and the contract thus was violated
4. The interference is without legal justification or valid excuse

Case Illustration: So Ping Bun vs Court of Appeals 314 SCRA 752, September 21, 1999

(In this case, petitioner asked DCCSI to execute lease of contracts in favor of his company, Trendsetter Marketing and as a result,
the petitioner deprived the respondent corporation of his property rights. Hence, petitioner is liable for damages).

Chapter II. Essential Requisites of Contracts


A. consent
1. Requisites-Art. 1319
a. Must be manifested by the concurrence of the offer and acceptance
Cases:
Rosenstock vs. urke, 46 Phil. 217 (1924)
Rosenstock vs. Burke
Post under case digests, Civil Law at Monday, February 27, 2012 Posted by Schizophrenic
Mind
Facts: Defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired
in Australia in 1920. He wanted to sell the yacht and after several months plaintiff H. W. Elser, at
the beginning of the year 1922, began negotiations with the defendant for the purchase of it.
The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht for
P120,000, of which P20,000 was to be retained by him as commission and the remaining
P100,000 to be paid to the defendant. To be able to sell the yacht, he wanted to make a voyage
on board the yacht with business men so that he could make a sale to them. But the yacht
needed some repairs which in turn, plaintiff paid for because defendant had no budget for that.
It has been stipulated that the plaintiff was not to pay anything for the use of the yacht. Because
of the said repairs, plaintiff loaned money from the Asia Banking Corporation. Since it amounted
to its maximum amount already, the bank could no longer give loans to plaintiff. Defendant now
gave plaintiff the option of sale to plaintiff amounting to P80,000; P5,000 each month during the
first six months and P10,000 thereafter until full payment of the price. Plaintiff in turn agreed by
letter. Defendant demanded the plaintiff for performance after he accepted the offer of plaintiff
for the purchase of the yacht. However, plaintiff now brings action to recover the sum of money
he used for repairs of the yacht.

Issue: Whether or not there was a valid contract of sale which is binding against plaintiff as used
in the letter of offer which was accepted by the defendant.

Held: The Supreme Court held that it was not a valid contract of sale. The words used by
plaintiff could not be interpreted as a definite offer to purchase the yacht, but simply a position to
deliberate whether or not he would purchase the yacht. It was but a mere invitation to a
proposal being made to him, which might be accepted by him or not. He used such words as, I
am in position and am willing to entertain the purchase of the yacht. not I want to buy the
yacht. Furthermore, the plaintiff wanted to organize a yacht club and the only thing he wanted
from defendant was he sells it so that he could profit from it if he re-sells it. The letter of the
plaintiff not containing a definite offer but a mere invitation to an offer being made to him.
Plaintiff is bound to pay the amount of the repairs of the yacht in exchange for the use thereof.

Malbarosa vs. CA, 402 SCRA 168 (2003)


Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 125761 April 30, 2003

SALVADOR P. MALBAROSA, petitioner,


vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP., respondents.

CALLEJO, SR., J.:

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of companies
wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC). The petitioner
Salvador P. Malbarosa was the president and general manager of Philtectic Corporation, and an officer of
other corporations belonging to the SEADC group of companies. The respondent assigned to the
petitioner one of its vehicles covered by Certificate of Registration No. 04275865 1 described as a 1982
model Mitsubishi Gallant Super Saloon, with plate number PCA 180 for his use. He was also issued
membership certificates in the Architectural Center, Inc. Louis Da Costa was the president of the
respondent and Commonwealth Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the
Board of Directors of the respondent and Vice-Chairman of the Board of Directors of Philtectic
Corporation.

Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to retire
from the SEADC group of companies and requested that his 1989 incentive compensation as president of
Philtectic Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to Senen Valero
tendering his resignation, effective February 28, 1990 from all his positions in the SEADC group of
companies, and reiterating therein his request for the payment of his incentive compensation for 1989. 2

Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990 to
discuss the amount of the 1989 incentive compensation petitioner was entitled to, and the mode of
payment thereof. Da Costa ventured that the petitioner would be entitled to an incentive compensation in
the amount of P395,000.

On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the
petitioner3stating therein that petitioner's resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he was entitled to an incentive compensation
in the amount of P251,057.67, and proposing that the amount be satisfied, thus:

- The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to
you at a value of P220,000.00. (Although you have indicated a value of P180,000.00, our survey
in the market indicates that P220,000.00 is a reasonable reflection of the value of the car.)

- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center,
Inc. will be transferred to you. (Although we do not as yet have full information as to the value of
these shares, we have been informed that the shares have traded recently in the vicinity of
P60,000.00.)4
The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on the
space provided therefor and the date thereof on the right bottom portion of the letter, thus:

Agreed:

SALVADOR P. MALBAROSA

Date: _____________________5

On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the March
14, 1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when he read the
letter and learned that he was being offered an incentive compensation of only P251,057.67. He told Da
Costa that he was entitled to no less than P395,000 as incentive compensation. The petitioner refused to
sign the letter-offer on the space provided therefor. He received the original of the letter and wrote on the
duplicate copy of the letter-offer retained by Da Costa, the words: "Rec'd original for review
purposes."6 Despite the lapse of more than two weeks, the respondent had not received the original of the
March 14, 1990 Letter-offer of the respondent with the conformity of the petitioner on the space provided
therefor. The respondent decided to withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of
Directors of the respondent approved a resolution authorizing the Philtectic Corporation and/or Senen
Valero to demand from the petitioner for the return of the car and to take such action against the
petitioner, including the institution of an action in court against the petitioner for the recovery of the motor
vehicle.7

On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the March
14, 1990 Letter-offer of the respondent and demanding that the petitioner return the car and his
membership certificate in the Architectural Center, Inc. within 24 hours from his receipt thereof. 8 The
petitioner received the original copy of the letter on the same day.

On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that he
cannot comply with said demand as he already accepted the March 14, 1990 Letter-offer of the
respondent when he affixed on March 28, 1990 his signature on the original copy of the letter-offer. 9 The
petitioner enclosed a xerox copy of the original copy of the March 14, 1990 Letter-offer of the respondent,
bearing his signature on the space provided therefore dated March 28, 1990. 10

With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a complaint against
the petitioner, as defendant, for recovery of personal property with replevin with damages and attorney's
fees, thus:

WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court


that:

1. Before hearing and upon approval of plaintiff's bond, a writ be issued immediately for the
seizure of the vehicle described in paragraph 3 hereof, wherever it may be found, and for its
delivery to plaintiff;

2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the
possession of the said motor vehicle, and, in the alternative, that defendant must deliver such
motor vehicle to plaintiff or pay to plaintiff the value thereof in case delivery cannot be made;

3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount of
P1,000.00 per day from date of demand until the motor vehicle is returned to plaintiff.
4. After trial, hold the defendant liable to plaintiff for attorney's fees and costs of litigation in the
amount of P100,000.00.

Plaintiffs likewise prays for such other reliefs as are just and equitable under the circumstances. 11

On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. 12 Correspondingly,
the writ of replevin was issued on May 8, 1990.13

On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession of the
vehicle in question. On May 15, 1990, the petitioner was able to recover the possession of the vehicle
upon his filing of the counter-bond.14

In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed on
March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified
the said plaintiff of his acceptance; hence, he had the right to the possession of the car. Philtectic
Corporation had no right to withdraw the offer of the respondent SEADC. The petitioner testified that after
conferring with his counsel, he had decided to accept the offer of the respondent, and had affixed his
signature on the space below the word "Agree" in the March 14, 1990 Letter-offer, thus:

Agreed:

(Sgd.)

SALVADOR P. MALBAROSA

Date: 3-28-90 15

The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he was
agreeable to an incentive compensation of P218,000 to be settled by the respondent by transferring the
car to the petitioner valued at P180,000 and P38,000 worth of shares of the Architectural Center, Inc. on
the claim of Da Costa that respondent was almost bankrupt. However, the petitioner learned that the
respondent was financially sound; hence, he had decided to receive his incentive compensation of
P395,000 in cash.16 On March 29, 1990, the petitioner called up the office of Louis Da Costa to inform the
latter of his acceptance of the letter-offer of the respondent. However, the petitioner was told by Liwayway
Dinglasan, the telephone receptionist of Commonwealth Insurance Co., that Da Costa was out of the
office. The petitioner asked Liwayway to inform Da Costa that he had called him up and that he had
already accepted the letter-offer. Liwayway promised to relay the message to Da Costa. Liwayway
testified that she had relayed the petitioner's message to Da Costa and that the latter merely nodded his
head.

After trial, the court a quo rendered its Decision17 on July 28, 1992, the dispositive portion of which reads
as follows:

WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant:

1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its value
of P220,000 in case delivery cannot be made;

2. pay plaintiff SEADC P50,000 as and for attorney's fees; and

3. Cost of litigation.

SO ORDERED.18
The trial court stated that there existed no perfected contract between the petitioner and the respondent
on the latter's March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of
his acceptance of said letter-offer before the respondent withdrew the same. The respondent filed a
motion for the amendment of the decision of the trial court, praying that the petitioner should be ordered
to pay to the respondent reasonable rentals for the car. On October 10, 1992, the court a quo issued an
order, granting plaintiff's motion and amending the dispositive portion of its July 28, 1992 Decision:

1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the rate of
P1,000.00 per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of the motor
vehicle; and

2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff
under the Counterbond issued pursuant to this case.

SO ORDERED.19

The petitioner appealed from the decision and the order of the court a quo to the Court of Appeals.

On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision of the trial court.
The dispositive portion of the decision reads:

WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the
Regional Trial Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that
the period of payment of rentals at the rate of P1,000.00 per day shall be from the time this
decision becomes final until actual delivery of the motor vehicle to plaintiff-appellee is made.

Costs against the defendant-appellant.

SO ORDERED.21

The Court of Appeals stated that the petitioner had not accepted the respondent's March 14, 1990 Letter-
offer before the respondent withdrew said offer on April 4, 1990.

The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals.

The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his part of
the March 14, 1990 Letter-offer of the respondent; 22 and (b) whether or not there was an effective
withdrawal by the respondent of said letter-offer.

The petition is dismissed.

Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from
March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already accepted
the offer of the respondent when he affixed his conformity thereto on the space provided therefor on
March 28, 199023 and had sent to the respondent corporation on April 7, 1990 a copy of said March 14,
1990 Letter-offer bearing his conformity to the offer of the respondent; hence, the respondent can no
longer demand the return of the vehicle in question. He further avers that he had already impliedly
accepted the offer when after said respondent's offer, he retained possession of the car.

For its part, the respondent contends that the issues raised by the petitioner are factual. The jurisdiction of
the Court under Rule 45 of the Rules of Court, as amended, is limited to revising and correcting errors of
law of the CA. As concluded by the Court of Appeals, there had been no acceptance by the petitioner of
its March 14, 1990 Letter-offer. The receipt by the petitioner of the original of the March 14, 1990 Letter-
offer for review purposes amounted merely to a counter-offer of the petitioner. The findings of the Court of
Appeals are binding on the petitioner. The petitioner adduced no proof that the respondent had granted
him a period within which to accept its offer. The latter deemed its offer as not accepted by the petitioner
in light of petitioner's ambivalence and indecision on March 16, 1990 when he received the letter-offer of
respondent.

We do not agree with the petitioner.

Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the contract. An offer may be
reached at any time until it is accepted. An offer that is not accepted does not give rise to a consent. The
contract does not come into existence.24 To produce a contract, there must be acceptance of the offer
which may be express or implied25but must not qualify the terms of the offer. The acceptance must be
absolute, unconditional and without variance of any sort from the offer. 26

The acceptance of an offer must be made known to the offeror. 27 Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and
acceptance.28 The offeror may withdraw its offer and revoke the same before acceptance thereof by the
offeree. The contract is perfected only from the time an acceptance of an offer is made known to the
offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be indicated by
the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On the other hand,
an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror as
the absence of the meeting of the minds on the altered type of acceptance. 29 An offer made inter
praesentes must be accepted immediately. If the parties intended that there should be an express
acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance
by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not
effective but constitutes a counter-offer which the offeror may accept or reject. 30 The contract is not
perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of the offeror is the
first to reach the offeree.31 The acceptance by the offeree of the offer after knowledge of the revocation or
withdrawal of the offer is inefficacious. The termination of the contract when the negotiations of the parties
terminate and the offer and acceptance concur, is largely a question of fact to be determined by the trial
court.32

In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen
Valero. On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of the
respondent to the petitioner. The respondent required the petitioner to accept the offer by affixing his
signature on the space provided in said letter-offer and writing the date of said acceptance, thus
foreclosing an implied acceptance or any other mode of acceptance by the petitioner. However, when the
letter-offer of the respondent was delivered to the petitioner on March 16, 1990, he did not accept or
reject the same for the reason that he needed time to decide whether to reject or accept the
same.33 There was no contract perfected between the petitioner and the respondent
corporation.34 Although the petitioner claims that he had affixed his conformity to the letter-offer on March
28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on April 7, 1990
when the petitioner appended to his letter to the respondent a copy of the said March 14, 1990 Letter-
offer bearing his conformity that he notified the respondent of his acceptance to said offer. But then, the
respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified the
petitioner of said withdrawal via respondent's letter dated April 4, 1990 which was delivered to the
petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14,
1990 Letter-offer of the respondent.

The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or reject its
offer does not persuade. It must be underscored that there was no time frame fixed by the respondent for
the petitioner to accept or reject its offer. When the offeror has not fixed a period for the offeree to accept
the offer, and the offer is made to a person present, the acceptance must be made immediately. 35 In this
case, the respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to
the petitioner its March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The
respondent, thus, had the option to withdraw or revoke the offer, which the respondent did on April 4,
1990.

Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of the
respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the petitioner had
more than two weeks which was more than sufficient for the petitioner to accept the offer of the
respondent. Although the petitioner avers that he had accepted the offer of the respondent on March 28,
1990, however, he failed to transmit to the respondent the copy of the March 14, 1990 Letter-offer bearing
his conformity thereto. Unless and until the respondent received said copy of the letter-offer, it cannot be
argued that a contract had already been perfected between the petitioner and the respondent.

On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and
controlled subsidiary of the respondent, had no authority to withdraw the offer of the respondent. The
resolution of the respondent authorizing Philtectic Corporation to take such action against the petitioner
including the institution of an action against him for the recovery of the subject car does not authorize
Philtectic Corporation to withdraw the March 14, 1990 Letter-offer of the respondent. The withdrawal by
Philtectic Corporation on April 4, 1990 of the offer of the respondent was ineffective insofar as the
petitioner was concerned. The respondent, for its part, asserts that the petitioner had failed to put in issue
the matter of lack of authority of Philtectic Corporation to withdraw for and in behalf of the respondent its
March 14, 1990 Letter-offer. It contends that the authority of Philtectic Corporation to take such action
including the institution of an action against the petitioner for the recovery of the car necessarily included
the authority to withdraw the respondent's offer. Even then, there was no need for the respondent to
withdraw its offer because the petitioner had already rejected the respondent's offer on March 16, 1990
when the petitioner received the original of the March 14, 1990 Letter-offer of the respondent without the
petitioner affixing his signature on the space therefor.

We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to demand for
and recover from the petitioner the subject car and to institute the appropriate action against him to
recover possession of the car is the authority to withdraw the respondent's March 14, 1990 Letter-offer. It
cannot be argued that respondent authorized Philtectic Corporation to demand and sue for the recovery
of the car and yet did not authorize it to withdraw its March 14, 1990 Letter-offer to the petitioner. Besides,
when he testified, Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to the
petitioner was upon his instruction and conformably with the aforesaid resolution of the Board of Directors
of the respondent:

Q Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any?

A After that resolution was passed. (sic) I instructed our lawyers to proceed with the demand
letter for the recovery of the vehicle.

Q Do you know if that demand letter was every (sic) made by your lawyer?
A Yes. I know that because I was the one who gave the instruction and before it was finally
served on Malbarosa, I was shown about the demand letter.

C/Pltf. Your honor, or rather . . .

Mr. Valero, if I show you a copy of that letter, will you be able to identify the same?

A Yes, sir.

Q I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr.
Salvador P. Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos
Angeles by ________. What relation, if any, does that demand letter have with the demand letter
that you are talking about?

A It's the same one I am referring to.

C/Pltf. Your honor, we manifest that the letter has been previously marked as our exh. "D".

Q Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written
in behalf of Philtectic Corporation. Do you have any knowledge why it was written this way?

A Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation for
the one using the car, it was only deemed proper that Philtectic will be the one to send the
demand letter.

Q In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion
made to the offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car
with plate# M-PCA-189 assigned to you by the company, and the membership share in the
Architectural Center Inc., be transferred to you in settlement. You previously stated about this
March 14 letter. What relation, if any, does this second paragraph with the letter-offer that you
previously stated.

C/Def. Objection, your honor. This witness is incompetent . . .

C/Pltf. But he was the one who instructed, your honor.

Court LET the witness answer.

Witness (Stenographer reads back the previous question asked by counsel for him to answer,
and . . ..)

A It is the same.36

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is
AFFIRMED.

SO ORDERED.

1) Offer
a) Must be certain - Art. 1319
b) What may be fixed by the offerer - Art. 1321
c) When made through an agent - Art. 1322
d) Circumstances when offer becomes ineffective-Art. 1323
e) Business advertisements of things for sale - Art. 1325
f) Advertisements for bidders - Art. 1326
Case:
Jardine Davies vs. CA, G.R. Nos. 128066 and 128069,June 19, 2000.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner,


vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,


vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to
resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more
arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail
further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to
install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers
were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit
the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3)
bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER
submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of
the contract to FEMSCO

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500
KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the
labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained
amount shall be released thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond
in an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year
from completion and acceptance of project. The contract price includes future increase/s in costs of materials and labor;
2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item required to
complete the project, and those not included in the list of items shall be deemed included and covered and shall be
performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of
Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk
Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be
endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk insurance
policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter
dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing
the necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of P1,000,000.00, as
requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the)
cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award
and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already
awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which
incidentally was not one of the bidders.1wphi1.nt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and
installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE:
PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After
FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court concluded
that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all
a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court
of law." 2 Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and
P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel
PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that
construction had already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and, (d)
to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial
court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the 27 June
1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the
latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition,
PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as
well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS
and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently
consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of
facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the
project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since
PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or
counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was
never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO.
Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the
award of moral damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE
induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4 There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the
contract; and, (c) cause of the obligation which is established. 5 A contract binds both contracting parties and has the force of law
between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment,
the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify
the terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy
lies in the consent whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the
contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS
started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
"[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions,"
these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first
"condition" was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the
bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all
items and materials including those excluded in the list but necessary to complete the project shall be deemed included and should
be brand new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery
of the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a
performance bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth
"condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions
on how the obligation was to be performed and implemented. They were far from being conditions imposed on the perfection of the
contract.

In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is already
an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein,
the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and
Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer,"
respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a
clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the
contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either
be express or implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would
only be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be
deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price
even after the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was
haggling for a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which
it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that
purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the
contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such contract
1avvphi1

was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by
the appellate court

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith
and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the
Court's mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to which
every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12In the instant case,
respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its
suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of
moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to
enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be
reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem
that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender
of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS
to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June
1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST
MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of
evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner
PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of
P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and
P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty
percent (20%) of the total amount due, is AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered to
pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and
exemplary damages in the amount of P1,000,000.00. Costs against petitioner.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.


2) Acceptance
a) Must be absolute-Art. 1319
b) Kinds
i. Express-Art. 1320
ii. Implied-Art. 1320
iii. Qualified-Art. 1319
c) If made by letter or telegram - Art. 1319, 2nd par.
i. Four theories on when the contract is perfected:
1. Manifestation theory
2. Expedition theory
3. Recrption theory
4. Cognition theory
d) Period of acceptance - Art 1324
Case:
Sanchez vs. Rigos, 45 SCRA 368 (1972)
Sanchez vs. Rigos
45 SCRA 368
June 1972

FACTS:

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 latters 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.

ISSUE:

Was there a contract to buy and sell between the parties or only a unilateral promise to sell?

COURT RULING:

The Supreme Court affirmed the lower courts 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." 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 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.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the
case at bar because the latters 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. 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.

e) Contract of option - Art. 1324


Case:
Adelfa Properties vs. CA, G.R. No. 111238, January 25, 1995 (see attached)

b. Necessary legal capacity of the parties


1) Who cannot give consent-Art. 1327
2) When offer and/or acceptance is made
a) during a lucid interval
b. in a state of drunkenness
c) during a hypnotic spell

c. The consent must be intelligent, free, spontaneous, and real - Arts. 1330-1346
1) Effect-Art. 1330
2) Vices of consent
a) Mistake or error
i. kinds
1. Mistake of fact
a. as to substance of the object
b. as to principal conditions
c. as to identity or qualifications of one of the parties
d. as to quantity, as distinguished from a simple mistake of account
Cases:
Damasug vs. Modelo, 34 Phil. 252 (1916)
Hemedes vs. CA, 316 SCRA (1990)
Katipunan vs. Katipnan, G.R. No. 132415, January 30,2002
iii. Inexcusable mistake-Art. 1333
b) Violence and intimidation - Art. 1335
i. Effect-Art. 1336
Case
Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252 (1910)
c) Undue influence-Art. 1337
d) Fraud or dolo - Art. 1338
Cases:
Hill vs. Veloso, 31 Phil. 161 (1915)
Woodhouse vs. Halili, supra
Geraldez vs. CA, supra
i. Kinds
1. dolo causante - Art 1338
2. dolo incidente - Art 1344, 2nd par.
ii. Failure to disclose facts; duty to reveal them - Art. 1339
Cases:
Tuason vs. Marquez. 45 Phil. 38 (1923)
Rural Bank of Sta. Maria vs.CA, 314 SCRA 255 (1999)
iii. Usual exaggerations in trade; opportunity to know the facts - Art. 1340
Cases:
Azarraga vs. Gay, 52 Phil. 599 (1928)
Laureta Trinidad vs. IAC, 204 SCRA 524 (1991)
iv. Mere expression of an opinion - Art. 1341
1. Effects - Art. 1344
e) Misrepresentation
i. By a third person - Art. 1342
ii. Made in good faith-Art. 1343
iii. Active/passive
Cases:
Mercado and Mercado vs. spiritu, 37 Phil. 215 (1917)
Braganza vs. Villa Abrille, 105 Phil. 456 (1959)
f) Simulation of Contracts
Cases:
Rodriguez vs. Rodriguez, 28 SCRA 229 (1914)
Suntay vs. CA, 251 SCRA 430 (1995)
Blanco vs. Quasha, G.R. No. 133148, November 17, 1999
i. Kinds-Art. 1345
1. absolute
2. relative
ii. Effects - Art 1346
B. Object of Contracts
1. What may be the objects of contracts - Art. 1347
a. All things not outside the commence of man
b. All rights not intransmissible
c. All services not contrary to law, morals, good customs, public or public policy
2. Requisite - must be determinate as to its kind - Art. 1349
3. What may not be the objects of contents
a. Future inheritance, except when authorized by law-Art. 1347
Cases:
Blas vs. Santos, 1 SCRA 899 (1961)
Tanedo vs. CA, G.R. No. 104482, January 22, 1996
b. Impossible things or services - Art. 1348
C. Cause of Contracts
1. Meaning of cause-Art. 1350
a. In onerous contracts
b. In remuneratory contracts
c. In contracts of pure beneficence
2. As distinguished from motive - Art. 1351
3. Defective causes and their effects:
a. Absence of cause and unlawful cause - Art.1352
Case:
Liguez vs. CA, 102 Phil. 577 (1957)
b. Statement of a false cause in the contract - Art. 1353
c. Lesion or inadequacy of cause - Art. 1355

Cases:
Carantes vs. CA, 76 SCRA 514 (1977)
Sps. Buenaventura, et al. vs. CA, 416 SCRA 263 (2003)
4. Presumption of the existence and lawfulness of a cause, though it is not stated in the
contract - Art. 1354

(to be continued)

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