Civil Law Review II 4th Assignment
59. Camelcraft v. NLRC (1990)
Facts:
Camelcraft Employees Union was registered as a
legitimate labor union, and yet Camelcraft Corp. refused to
recognize it, so the union filed a petition for certification for
election. Shortly thereafter, the Camelcraft announced that it
would close down due to financial losses, and so it did. Thus,
the union filed a complaint for illegal lockout and unfair labor
practices. The Labor Arbiter and the NLRC ruled in favor of the
union. Camelcraft filed a petition for certiorari, claiming that
the NLRC acted with grave abuse of discretion. And to shield
itself from paying the employees their unpaid wages,
Camelcraft pointed out that the employees executed a waiver
to the effect that the employees would waive the award
granted by the NLRC, and in exchange, Camelcraft would
implement all benefits under existing labor laws.
Issue: Whether or not the waiver executed by the employees
were valid.
Held: No, because they are contrary to public policy, pursuant
to Art. 1306 of the Civil Code. The subordinate position of the
individual employee vis-a-vis management renders him
especially vulnerable to its blandishments and importunings,
and even intimidations, that may result in his improvidently if
reluctantly signing over benefits to which he is clearly entitled.
Recognizing this danger, we have consistently held that
quitclaims of the workers' benefits win not estop them from
asserting them just the same on the ground that public policy
prohibits such waivers.
60. Avon v. Luna (2006)
Facts:
Leticia Luna used to be a supervisor in Beautifront Inc.
until it was acquired by Avon Cosmetics Inc. Luna then became
a supervisor and part of the independent sales force of Avon
after signing a contract which stipulates, among others, that
(1) The Supervisor shall sell or offer to sell, display or promote
only and exclusively products sold by the Company; and (2)
Either party may terminate this agreement at will, with or
without cause, at any time upon notice to the other.
Later on, Luna was invited and agreed to sell the products
of Sandre Philippines, Inc., a corporation engaged in direct
selling of vitamins and other food supplements. Knowing that
she had a contract with Avon, Luna consulted a lawyer, who
told her that the two provisions mentioned above are void for
being contrary to public policy.
When Luna told Avon of her lawyers opinion, Avon
terminated its contract with Luna. Thus, Luna sued Avon for
damages.
Luna echoed her counsels opinion, that the two provisions
are contrary to public policy, while Avon argued that the
exclusivity clause was directed against the supervisors selling
other products utilizing their training and experience, and
capitalizing on Avons existing network for the promotion and
sale of the said products. The exclusivity clause was meant to
protect Avon from other companies, whether competitors or
not, who would exploit the sales and promotions network
already established by Avon at great expense and effort.
Issue: Whether or not the two provisions of the contract
between Avon and Luna are contrary to public policy, hence
void.
Held: No. Contracts requiring exclusivity are not per se void.
Each contract must be viewed vis--vis all the circumstances
surrounding such agreement in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable
restraint on competition. The question that now crops up is
this, when is a restraint in trade unreasonable? Authorities are
one in declaring that a restraint in trade is unreasonable when
it is contrary to public policy or public welfare.
Public policy is that principle of the law which holds that
no subject or citizen can lawfully do that which has a tendency
to be injurious to the public or against the public good. As
applied to contracts, in the absence of express legislation or
constitutional prohibition, a court, in order to declare a
contract void as against public policy, must find that the
contract as to the consideration or thing to be done, has a
tendency to injure the public, is against the public good, or
contravenes some established interests of society, or is
inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether
of personal liability or of private property.
Applying the preceding principles in this case, the
exclusivity provision in the contract between Avon and Luna is
not contrary to public policy. Such prohibition is neither
directed to eliminate the competition like Sandr Phils., Inc.
nor foreclose new entrants to the market. In its Memorandum,
it admits that the reason for such exclusion is to safeguard the
network that it has cultivated through the years. Admittedly,
both companies employ the direct selling method in order to
peddle their products. By direct selling, petitioner Avon and
Sandre, the manufacturer, forego the use of a middleman in
selling their products, thus, controlling the price by which they
are to be sold. The limitation does not affect the public at all.
It is only a means by which petitioner Avon is able to protect
its investment.
It was not by chance that Sandr Philippines, Inc. made
respondent Luna one of its Group Franchise Directors. It
doesnt take a genius to realize that by making her an
important part of its distribution arm, Sandr Philippines, Inc.,
a newly formed direct-selling business, would be saving time,
effort and money as it will no longer have to recruit, train and
motivate supervisors and dealers. Respondent Luna, who
learned the tricks of the trade from petitioner Avon, will do it
for them. This is tantamount to unjust enrichment. Worse, the
goodwill established by petitioner Avon among its loyal
customers will be taken advantaged of by Sandre Philippines,
Inc. It is not so hard to imagine the scenario wherein the sale
of Sandr products by Avon dealers will engender a belief in
the minds of loyal Avon customers that the product that they
are buying had been manufactured by Avon. In other words,
they will be misled into thinking that the Sandr products are
in fact Avon products. From the foregoing, it cannot be said
that the purpose of the subject exclusivity clause is to
foreclose the competition, that is, the entrance of Sandr
products in to the market. Therefore, it cannot be considered
void for being against public policy. How can the protection of
ones property be violative of public policy? Sandr Philippines,
Inc. is still very much free to distribute its products in the
market but it must do so at its own expense. The exclusivity
 Civil Law Review II 4th Assignment
clause does not in any way limit its selling opportunities, just
the undue use of the resources of petitioner Avon.
Neither is the termination clause contrary to public policy.
In the case of Petrophil Corporation v. Court of Appeals, this
Court already had the opportunity to opine that termination or
cancellation clauses such as that subject of the case at bar are
legitimate if exercised in good faith. The facts of said case
likewise involved a termination or cancellation clause that
clearly provided for two ways of terminating the contract, i.e.,
with or without cause. The utilization of one mode will not
preclude the use of the other. Therein, we stated that the
finding that the termination of the contract was "for cause," is
immaterial. When petitioner terminated the contract "without
cause," it was required only to give x x x a 30-day prior written
notice, which it did.
In the case at bar, the termination clause of the
Supervisors Agreement clearly provides for two ways of
terminating and/or canceling the contract. One mode does not
exclude the other. The contract provided that it can be
terminated or cancelled for cause, it also stated that it can be
terminated without cause, both at any time and after written
notice. Thus, whether or not the termination or cancellation of
the Supervisors Agreement was "for cause," is immaterial. The
only requirement is that of notice to the other party. When
petitioner Avon chose to terminate the contract, for cause,
respondent Luna was duly notified thereof.
61. Acol v. PCIBank (2006)
Facts:
Manuel Acol was a PCIB credit card holder. On April 19,
1987, he reported to PCIB that he lost his credit card the
previous day, and he was told that his card would be
immediately included in the circular of lost cards. On April 20,
he followed up his report, and he was told to put into writing
the notice of loss and to submit it, together with the extension
cards of his wife and daughter. The notice was received by
PCIB on April 22. On April 21, a day before receiving the
written notice, PCIB issued a special cancellation bulleting
informing its accredited establishments of the loss of the cards
of the enumerated holders, including Acols. However,
someone had already used Acols credit card on April 19 and
20 to buy commodities worth P76,067.28.
At first, PCIB agreed to reverse the billings, but it changed
its mind, invoking a certain provision at the back of the
application form which Acol has signed: Holder's responsibility
for all charges made through the use of the card shall continue
until the expiration or its return to the Card Issuer or until a
reasonable time after receipt by the Card Issuer of written
notice of loss of the Card and its actual inclusion in the
Cancellation Bulletin.
PCIB filed a collection suit against Acol.
Issue: Whether or not the provision cited above was valid.
Held: No. The Court has previously ruled in Ermitano v. CA
that prompt notice by the cardholder to the credit card
company of the loss or theft of his card should be enough to
relieve the former of any liability occasioned by the
unauthorized use of his lost or stolen card. The questioned
stipulation in this case, which still requires the cardholder to
wait until the credit card company has notified all its
memberestablishments, puts the cardholder at the mercy of
the credit card company which may delay indefinitely the
notification of its members to minimize if not to eliminate the
possibility of incurring any loss from unauthorized purchases.
Or, as in this case, the credit card company may for some
reason fail to promptly notify its members through absolutely
no fault of the cardholder. To require the cardholder to still pay
for the unauthorized purchases after he has given prompt
notice of the loss or theft of his card to the credit card
company would simply be unfair and unjust. The Court cannot
give its assent to such a stipulation which could clearly run
against public policy.
In this case, the stipulation in question is just as
repugnant to public policy as that in Ermitao. As petitioner
points out, the effectivity of the cancellation of the lost card
rests on an act entirely beyond the control of the cardholder.
Worse, the phrase "after a reasonable time" gives the issuer
the opportunity to actually profit from unauthorized charges
despite receipt of immediate written notice from the
cardholder.
Under such a stipulation, petitioner could have
theoretically done everything in his power to give respondent
the required written notice. But if respondent took a
"reasonable" time (which could be indefinite) to include the
card in its cancellation bulletin, it could still hold the cardholder
liable for whatever unauthorized charges were incurred within
that span of time. This would have been truly iniquitous,
considering the amount respondent wanted to hold petitioner
liable for.
Article 1306 of the Civil Code10 prohibits contracting
parties from establishing stipulations contrary to public policy.
The assailed provision was just such a stipulation. It is without
any hesitation therefore that we strike it down.
62. Piltel v. Tecson (2004)
Facts:
On various dates in 1996, Delfino C. Tecson applied for six
(6) cellular phone subscriptions with petitioner Pilipino
Telephone Corporation (PILTEL), a company engaged in the
telecommunications business, which applications were each
approved and covered, respectively, by six mobiline service
agreements. On 05 April 2001, respondent filed with the
Regional Trial Court of Iligan City, Lanao Del Norte, a
complaint against petitioner for a Sum of Money and Damages.
Petitioner moved for the dismissal of the complaint on the
ground of improper venue, citing a common provision in the
mobiline service agreements to the effect that: Venue of all
suits arising from this Agreement or any other suit directly or
indirectly arising from the relationship between PILTEL and
subscriber shall be in the proper courts of Makati, Metro
Manila. Subscriber hereby expressly waives any other venues.
The RTC and CA denied petitioners motion to dismiss,
with the CA noting that since the subscription agreement was
a mere contract of adhesion, it does not bind respondent on
the venue stipulation.
Issue: Whether or not the venue stipulation binds respondent.
Held: Yes. Indeed, the contract herein involved is a contract
of adhesion. But such an agreement is not per se inefficacious.
The rule instead is that, should there be ambiguities in a
 Civil Law Review II 4th Assignment
contract of adhesion, such ambiguities are to be construed
against the party that prepared it. If, however, the stipulations
are not obscure, but are clear and leave no doubt on the
intention of the parties, the literal meaning of its stipulations
must be held controlling. A contract of adhesion is just as
binding as ordinary contracts. It is true that this Court has, on
occasion, struck down such contracts as being assailable when
the weaker party is left with no choice by the dominant
bargaining party and is thus completely deprived of an
opportunity to bargain effectively. Nevertheless, contracts of
adhesion are not prohibited even as the courts remain careful
in scrutinizing the factual circumstances underlying each case
to determine the respective claims of contending parties on
their efficacy.
In the case at bar, respondent secured six (6) subscription
contracts for cellular phones on various dates. It would be
difficult to assume that, during each of those times,
respondent had no sufficient opportunity to read and go over
the terms and conditions embodied in the agreements.
Respondent continued, in fact, to acquire in the pursuit of his
business subsequent subscriptions and remained a subscriber
of petitioner for quite some time.
In Development Bank of the Philippines vs. National
Merchandising Corporation, the contracting parties, being of
age and businessmen of experience, were presumed to have
acted with due care and to have signed the assailed
documents with full knowledge of their import. The situation
would be no less true than that which obtains in the instant
suit. The circumstances in Sweet Lines, Inc. vs. Teves, wherein
this Court invalidated the venue stipulation contained in the
passage ticket, would appear to be rather peculiar to that
case. There, the Court took note of an acute shortage in inter-
island vessels that left passengers literally scrambling to secure
accommodations and tickets from crowded and congested
counters. Hardly, therefore, were the passengers accorded a
real opportunity to examine the fine prints contained in the
tickets, let alone reject them. A contract duly executed is the
law between the parties, and they are obliged to comply fully
and not selectively with its terms. A contract of adhesion is no
exception.
63. PNB v. Padilla (1991)
Facts:
Ambrosio Padilla obtained a loan from PNB of P1.8 million
secured by a real estate mortgage for a term of 2 years with
18% interest per annum. The promissory notes executed by
Padilla uniformly authorized the PNB to increase the stipulated
18% interest per annum within the limits allowed by law. As
Padilla was paying his amortizations, PNB has kept on
increasing the interest rate: from 18% to 32%; from 32% to
41%; and from 41% to 48%. PNB invoked its board
resolutions to justify the increases.
Later on, Padilla filed a complaint with the RTC against
PNB praying that the court declare the unilateral increase of
interest rates to be invalid, and that the excess of interest
payment collected by PNB by debiting Padillas current account
be refunded or credited to his current account.
The RTC and the CA ruled in favor of Padilla.
Issue: Whether or not PNBs unilateral increase of the interest
rates was valid.
Held: No. Escalation clauses to be valid should specifically
provide: (1) that there can be an increase in interest if
increased by law or by the Monetary Board; and (2) in order
for such stipulation to be valid, it must include a provision for
reduction of the stipulated interest in the event that the
applicable maximum rate of interest is reduced by law or by
the Monetary Board.
In this case, PNB relied on its own board resolutions,
which are neither laws nor resolutions of the Monetary Board.
Moreover, Art. 1308 provides: The contract must bind
both contracting parties; its validity or compliance cannot be
left to the will of one of them.
In order that obligations arising from contracts may have
the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A
contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia v. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private respondent gave
the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license
would have been null and void for being violative of the
principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract
of adhesion, where the parties do not bargain on equal
footing, the weaker partys (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua v. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition. PNBS successive
increases of the interest rate on the private respondents loan,
over the latters protest, were arbitrary as they violated an
express provision of the Credit Agreement (Exh. 1) Section
9.01 that its terms "may be amended only by an instrument in
writing signed by the party to be bound as burdened by such
amendment." The increases imposed by PNB also contravene
Art. 1956 of the Civil Code which provides that "no interest
shall be due unless it has been expressly stipulated in writing."
64. MIAA v. Ding Velayo Sports Center, Inc. (2011)
Facts:
In 1967, MIAA (then called the Civil Aeronautics
Admistration) and Salem Investment Corporation (Salem)
entered into a contract of lease whereby MIAA leased in favor
of Salem a parcel of land in front of the Manila International
Airport in Pasay City. The purpose of the lease was to enable
Salem to develop the subject land which was an eyesore to the
airport premises. The contract of lease was for 25 years. In
1974, Salem transferred its lease rights in favor of Ding Velayo
Export Corporation. Thereafter, MIAA and Velayo entered into
a new contract, which contained the following provisions:
Par. 5: That the LESSEE shall pay to the LESSOR as monthly
rentals for the leased premises the rate of P0.45 per square
meter for the first 300 square meters, P0.30 per square meter
for the next 500 square meters, and P0.25 per square meter
for the remaining area pursuant to Part VIII, Section 4 of
Administrative Order No. 4, Series of 1970, which in the case
of the 8,481 square meters herein leased shall amount to
P2,205.25 per month, or a royalty equivalent to one percent
 Civil Law Review II 4th Assignment
(1%) of the monthly gross income of the LESSEE, whichever
is higher.
Par. 13: If, during the lifetime of this agreement and upon
approval by the LESSOR, the leased area is increased or
diminished, or the LESSEE is relocated to another area,
rentals, fees, and charges imposed shall be amended
accordingly. Subsequent amendments to the Administrative
Order which will affect an increase of the rates of fees,
charges and rentals agreed upon in this contract shall
automatically amend this contract to the extent that the rates
of fees, rentals, and charges are increased.
Par. 17: The LESSEE, if desirous of continuing his lease,
should notify the LESSOR sixty (60) days prior to expiration of
the period agreed upon for the renewal of the Contract of
Lease.
Petitioner eventually issued Administrative Order (AO) No.
4, series of 1982, and AO No. 1, series of 1984, fixing various
rates for the lease rentals of its properties. AO No. 4, series of
1982, and AO No. 1, series of 1984, allegedly effected an
increase in the lease rental of respondent for the subject
property, as provided for in paragraph 13 of the Contract of
Lease dated May 14, 1976 between petitioner and respondent.
MIAA increased the amount of rent by 2,000%.
Eventually, Velayo could not pay, and when it asked MIAA for
the renewal of the lease contract, the latter refused and told
Velayo, which peaceably agreed. But when the president of
Velayo was replaced, it reneged on its agreement to vacate.
Instead, it insisted on renewing the contract with MIAA.
Velayo filed an action for injunction, consignation and
damages against MIAA. The RTC and the CA ruled in favor of
Velayo.
MIAA argued that the renewal of the Contract of Lease
cannot be made to depend on the sole will of Velayo for the
same would then be void for being a potestative condition.
Issue: Whether or not the renewal clause was void.
Held: No. Article 1308 of the Civil Code expresses what is
known in law as the principle of mutuality of contracts. It
provides that "the contract must bind both the contracting
parties; its validity or compliance cannot be left to the will of
one of them."
An express agreement which gives the lessee the sole
option to renew the lease is frequent and subject to statutory
restrictions, valid and binding on the parties. This option,
which is provided in the same lease agreement, is
fundamentally part of the consideration in the contract and is
no different from any other provision of the lease carrying an
undertaking on the part of the lessor to act conditioned on the
performance by the lessee. It is a purely executory contract
and at most confers a right to obtain a renewal if there is
compliance with the conditions on which the right is made to
depend. The right of renewal constitutes a part of the lessee's
interest in the land and forms a substantial and integral part of
the agreement. The fact that such option is binding only on the
lessor and can be exercised only by the lessee does not render
it void for lack of mutuality. After all, the lessor is free to give
or not to give the option to the lessee.
Paragraph 17 of the Contract of Lease dated May 14, 1976
between petitioner and respondent solely granted to
respondent the option of renewing the lease of the subject
property, the only express requirement was for respondent to
notify petitioner of its decision to renew the lease within 60
days prior to the expiration of the original lease term. It has
not been disputed that said Contract of Lease was willingly and
knowingly entered into by petitioner and respondent. Thus,
petitioner freely consented to giving respondent the exclusive
right to choose whether or not to renew the lease. As we
stated in Allied Banking, the right of renewal constitutes a part
of the interest of respondent, as lessee, in the subject
property, and forms a substantial and integral part of the lease
agreement with petitioner. Records show that respondent had
duly complied with the only condition for renewal under
Section 17 of the Contract of Lease by notifying petitioner 60
days prior to the expiration of said Contract that it chooses to
renew the lease. We cannot now allow petitioner to arbitrarily
deny respondent of said right after having previously agreed to
the grant of the same.
Equally unmeritorious is the assertion of petitioner that
paragraph 17 of the Contract of Lease dated May 14, 1976
merely provides a procedural basis for a negotiation for
renewal of the lease and the terms thereof. The exercise by
respondent of its option to renew the lease need no longer be
subject to negotiations.
Just as the RTC adjudged, no fault could be attributed to
respondent for deficient payment of lease rentals. Lease
rentals were based on either the rates fixed by AO No. 4,
series of 1970, or 1% of the monthly gross income of
respondent, whichever is higher. At the very beginning of the
lease, respondent had been paying monthly lease rentals
based on the rates fixed by AO No. 4, series of 1970, which
amounted to P2,205.25 per month. When requested,
respondent submitted to petitioner its gross income
statements, so petitioner could very well compute the 1%
royalty. However, petitioner continued to charge respondent
only P2,205.25 monthly lease rental, which the latter faithfully
paid. Petitioner later demanded an increase in lease rentals
based on subsequent administrative issuances raising the rates
for the rental of its properties. But the RTC found that the
adverted administrative orders were not published in full, thus,
the same were legally invalid within the context of Article 2 of
the Civil Code which provides that [l]aws shall take effect after
fifteen days following the completion of their publication in the
Official Gazette, unless it is otherwise provided. x x x In Taada
v. Tuvera,we enunciated that publication is indispensable in
order that all statutes, including administrative rules that are
intended to enforce or implement existing laws, attain binding
force and effect, to wit: We hold therefore that all statutes,
including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin
fifteen days after publication unless a different effectivity date
is fixed by the legislature.
65. DKC Holdings Corporation v. CA (2000)
Facts:
DKC Holdings entered into a contract of lease with option
to buy with Encarnacion Bartolome over a 14,021 square
meter land in Valenzuela, Metro Manila. DKC regularly paid the
monthly rental of P3,000 to Encarnacio until her death.
Thereafter, DKC coursed its payment to Encarnacions son and
sole heir, Victor. However, Victor refused to accept these
payments and altogether refused to deal with DKC. Hence,
 Civil Law Review II 4th Assignment
DKC filed a complaint for specific performance and damages
against Victor and the Register of Deeds who refused to
register and annotate the contract with Encarnacion on Victors
title over the property. The RTC and CA ruled in favor of
Victor.
Issue: Whether or not Victor is bound by the contract entered
into between DKC and Encarnacion.
Ruling: Yes. The general rule, therefore, is that heirs are
bound by contracts entered into by their predecessors-in-
interest except when the rights and obligations arising
therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law. In the case at bar, there is
neither contractual stipulation nor legal provision making the
rights and obligations under the contract intransmissible. More
importantly, the nature of the rights and obligations therein
are, by their nature, transmissible.
It has also been held that a good measure for determining
whether a contract terminates upon the death of one of the
parties is whether it is of such a character that it may be
performed by the promissors personal representative.
Contracts to perform personal acts which cannot be as well
performed by others are discharged by the death of the
promissor. Conversely, where the service or act is of such a
character that it may as well be performed by another, or
where the contract, by its terms, shows that performance by
others was contemplated, death does not terminate the
contract or excuse nonperformance.
In the case at bar, there is no personal act required from
the late Encarnacion Bartolome. Rather, the obligation of
Encarnacion in the contract to deliver possession of the subject
property to petitioner upon the exercise by the latter of its
option to lease the same may very well be performed by her
heir Victor. It is futile for Victor to insist that he is not a party
to the contract because of the clear provision of Article 1311 of
the Civil Code. Indeed, being an heir of Encarnacion, there is
privity of interest between him and his deceased mother. He
only succeeds to what rights his mother had and what is valid
and binding against her is also valid and binding as against
him.
In the case at bar, the subject matter of the contract is
likewise a lease, which is a property right. The death of a party
does not excuse nonperformance of a contract which involves
a property right, and the rights and obligations thereunder
pass to the personal representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party when
the other party has a property interest in the subject matter of
the contract. Under both Article 1311 of the Civil Code and
jurisprudence, therefore, Victor is bound by the subject
Contract of Lease with Option to Buy.
66. Tanay Recreation Center and Development Corp. v.
Fausto (2005)
Facts:
Petitioner TRCDC was the lessee of a parcel of land in
Tanay owned by Catalina Fausto under a contract of lease, the
term of which is 20 years, subject to renewal within 60 days
prior to its expiration. The contract also granted TRCDC the
right of first refusal.
Later on, when TRCDC wrote Catalina a letter informing
her of its intention to renew the lease contract, it was her
daughter, Anunciacion Fausto Pacunayen who replied.
Anunciacion said that she was now the absolute owner of the
property and asked TRCDC to vacate the property. Catalina
earlier sold the land to Anunciacion.
TRCDC filed a complaint for annulment of deed of sale
and specific performance. In her answer, Anunciacion claimed
that TRCDC is estopped from assailing the validity of the deed
of sale, because the latter acknowledge her ownership when it
merely asked for a renewal of the lease. According to her,
when they met to discuss the matter, TRCDC did not demand
for the exercise of its option to purchase the property.
The RTC ruled in favor of Catalina. The CA affirmed,
noting that the right of first refusal granted to TRCDC applied
only in case the property were to be sold to strangers and not
to Catalinas relatives. The CA also ruled that it would be
useless to annul the sale between Catalina and Anunciacion,
because the property would still remain with the latter after
the death of her mother by virtue of succession.
Issue: Whether or not the rulings of the CA are correct.
Held: No. It was erroneous for the CA to rule that the right of
first refusal does not apply when the property is sold to
Faustos relative. In this case, the wording of the stipulation
giving petitioner the right of first refusal is plain and
unambiguous, and leaves no room for interpretation. It simply
means that should Fausto decide to sell the leased property
during the term of the lease, such sale should first be offered
to petitioner. The stipulation does not provide for the
qualification that such right may be exercised only when the
sale is made to strangers or persons other than Faustos kin.
The prevailing doctrine therefore, is that a right of first refusal
means identity of terms and conditions to be offered to the
lessee and all other prospective buyers and a contract of sale
entered into in violation of a right of first refusal of another
person, while valid, is rescissible.
The prevailing doctrine therefore, is that a right of first
refusal means ideIt was also incorrect for the CA to rule that it
would be useless to annul the sale between Fausto and
respondent because the property would still remain with
respondent after the death of her mother by virtue of
succession, as in fact, Fausto died in March 1996, and the
property now belongs to respondent, being Faustos heir.tity of
terms and conditions to be offered to the lessee and all other
prospective buyers and a contract of sale entered into in
violation of a right of first refusal of another person, while
valid, is rescissible.
It was also incorrect for the CA to rule that it would be
useless to annul the sale between Fausto and respondent
because the property would still remain with respondent after
the death of her mother by virtue of succession, as in fact,
Fausto died in March 1996, and the property now belongs to
respondent, being Faustos heir. For one, Fausto was bound by
the terms and conditions of the lease contract. Under the right
of first refusal clause, she was obligated to offer the property
first to petitioner before selling it to anybody else. When she
sold the property to respondent without offering it to
petitioner, the sale while valid is rescissible so that petitioner
may exercise its option under the contract. With the death of
Fausto, whatever rights and obligations she had over the
 Civil Law Review II 4th Assignment
property, including her obligation under the lease contract,
were transmitted to her heirs by way of succession, a mode of
acquiring the property, rights and obligation of the decedent to
the extent of the value of the inheritance of the heirs. Article
1311 of the Civil Code provides: Contracts take effect only
between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
A lease contract is not essentially personal in character.
Thus, the rights and obligations therein are transmissible to
the heirs. The general rule is that heirs are bound by contracts
entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible
by (1) their nature, (2) stipulation or (3) provision of law. In
this case, the nature of the rights and obligations are, by their
nature, transmissible. There is also neither contractual
stipulation nor provision of law that makes the rights and
obligations under the lease contract intransmissible. The lease
contract between petitioner and Fausto is a property right,
which is a right that passed on to respondent and the other
heirs, if any, upon the death of Fausto.
67. Gilchrist v. Cuddy (1915)
Facts:
Cuddy was the owner of the film Zigomar, and he
agreed to rent it to Gilchrist, an owner of a theater in Iloilo for
P125. But Cuddy later on cancelled its contract with Gilchrist,
when he found, Espejo, another theater owner, willing to pay
more (P350). Thus, Gilchrist filed an action for injunction
against Cuddy and Espejo.
It was established that Espejo knowlingly induced Cuddy
to violate his contract with another person. But there is no
proof that Espejo knew the identity of Gilchrist. Espejos theory
is that he could not be liable for contractual interference,
because the fact that he did not know Gilchrist negates malice
on his part.
Issue: Whether or not Espejo is liable for contractual
interference.
Held: Yes. It is said that the ground on which the liability of a
third party for interfering with a contract between others rests,
is that the interference was malicious. The contrary view,
however, is taken by the Supreme Court of the United States
in the case of Angle vs. Railway Co. (151 U. S., 1). The only
motive for interference by the third party in that case was the
desire to make a profit to the injury of one of the parties of the
contract. There was no malice in the case beyond the desire to
make an unlawful gain to the detriment of one of the
contracting parties. In the case at bar the only motive for the
interference with the Gilchrist Cuddy contract on the part of
the appellants was a desire to make a profit by exhibiting the
film in their theater. There was no malice beyond this desire;
but this fact does not relieve them of the legal liability for
interfering with that contract and causing its breach. It is,
therefore, clear, under the above authorities, that they were
liable to Gilchrist for the damages caused by their acts, unless
they are relieved from such liability by reason of the fact that
they did not know at the time the identity of the original lessee
(Gilchrist) of the film.1
68. Montecillo v. Reynes (2002)
Facts:
Ignacia Reynes sold a parcel of land to Rido Montecillo. In
their Deed of Sale, it was stated therein that for an in
consideration of P47,000 to me in hand paid by Rido
Montecillo In other words, at the time of the execution of
the Deed of Sale, Montecillo supposedly had already paid
Reynes. But it turns out that Montecillo never paid Reynes.
Thus, Reynes revoked her sale with Montecillo and sold the
land again to Spouses Abucay. But later on, Reynes found out
that a certificate of title was issued in favor of Montecillo.
Reynes and Spouses Abucay filed an action for declaration
of nullity and quiting of title against Montecillo. They argued
that there was no meeting of the minds between Reynes and
Montecillo for lack of consideration. On the other hand,
Montecillo claimed that the consideration for the sale was the
amount he paid to Cebu Ice Storage Corporation for the
mortgaged debt of Bienvenido Jayag which constituted a lien
on the subject parcel of land.
The RTC and the CA ruled in favor of Reynes.
Issue: Whether or not there was a valid sale.
Held: No. The Supreme Court first discussed the manner of
payment of the P47,000 purchase price. Montecillos payment
to Cebu Ice Storage is not the payment that would
extinguish[16]Montecillos obligation to Reynes under the Deed
of Sale. It militates against common sense for Reynes to sell
her Mabolo Lot for P47,000.00 if this entire amount would only
go to Cebu Ice Storage, leaving not a single centavo to her for
giving up ownership of a valuable property. This incredible
allegation of Montecillo becomes even more absurd when one
considers that Reynes did not benefit, directly or indirectly,
from the payment of the P47,000.00 to Cebu Ice Storage.
Ignacia Reynes was not a party to nor privy of the obligation in
favor of the Cebu Ice and Cold Storage Corporation, the
obligation being exclusively of Bienvenido Jayag and wife who
mortgaged their residential house constructed on the land
subject matter of the complaint. The payment by the
defendant to release the residential house from the mortgage
is a matter between him and Jayag and cannot by implication
or deception be made to appear as an encumbrance upon the
land. Thus, Montecillos payment to Jayags creditor could not
possibly redound to the benefit of Reynes.
Under Article 1318 of the Civil Code, [T]here is no contract
unless the following requisites concur: (1) Consent of the
contracting parties; (2) Object certain which is the subject
matter of the contract; (3) Cause of the obligation which is
established. Article 1352 of the Civil Code also provides that
[C]ontracts without cause x x x produce no effect whatsoever.
Montecillo argues there is only a breach of his obligation
to pay the full purchase price on time.Such breach merely
gives Reynes a right to ask for specific performance, or for
annulment of the obligation to sell the Mabolo Lot. These
arguments are not persuasive.
1Espejo was made liable on the basis of Art. 1902 of the Old Civil Code. It is
the equivalent of Art. 19 of the New Civil Code.
 Civil Law Review II 4th Assignment
This is not merely a case of failure to pay the purchase
price, as Montecillo claims, which can only amount to a breach
of obligation with rescission as the proper remedy. What we
have here is a purported contract that lacks a cause - one of
the three essential requisites of a valid contract. Failure to pay
the consideration is different from lack of consideration. The
former results in a right to demand the fulfillment or
cancellation of the obligation under an existing valid contract
while the latter prevents the existence of a valid contract
Where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the deed of sale is
null and void ab initio for lack of consideration.
Reynes expected Montecillo to pay him directly the
P47,000.00 purchase price within one month after the signing
of the Deed of Sale. On the other hand, Montecillo thought
that his agreement with Reynes required him to pay the
P47,000.00 purchase price to Cebu Ice Storage to settle
Jayags mortgage debt. Montecillo also acknowledged a balance
of P10,000.00 in favor of Reynes although this amount is not
stated in Montecillos Deed of Sale. Thus, there was no
consent, or meeting of the minds, between Reynes and
Montecillo on the manner of payment. This prevented the
existence of a valid contract because of lack of consent. In
summary, Montecillos Deed of Sale is null and void ab initio not
only for lack of consideration, but also for lack of consent. The
cancellation of TCT No. 90805 in the name of Montecillo is in
order as there was no valid contract transferring ownership of
the Mabolo Lot from Reynes to Montecillo.
69. Francisco v. Herrera (2002)
Facts:
Eligio Herrera was the owner of two parcels of land in
Cainta. Eligio sold those lands to Julian Francisco. At the time
of the sale, Eligio was already afflicted with senile dementia,
characterized by deteriorating mental and physical condition,
including memory loss. Meanwhile, the heirs of Herrera found
the contract price for the two lands to be grossly inadequate,
so they negotiated with Francisco to increase the purchase
price, but he refused. Thus, the heirs of Francisco filed a
complaint for annulment of sale against Francisco.
The Herrera heirs contended that the contract was void,
while Francisco argued that the contract was voidable and was
ratified when the heirs accepted the purchase price on behalf
of their father.
Issue: Is the sale between Eligio Herrera and Julian Francisco
voidable or void? If it is voidable, was there ratification?
Held: Voidable. Article 1327 provides that insane or demented
persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is
that the contract is voidable or annullable as specifically
provided in Article 1390. In the present case, it was
established that the vendor Eligio, Sr. entered into an
agreement with petitioner, but that the formers capacity to
consent was vitiated by senile dementia. Hence, we must rule
that the assailed contracts are not void or inexistent per se;
rather, these are contracts that are valid and binding unless
annulled through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by
ratification, which can be express or implied. Implied
ratification may take the form of accepting and retaining the
benefits of a contract. This is what happened in this case.
Respondents contention that he merely received payments on
behalf of his father merely to avoid their misuse and that he
did not intend to concur with the contracts is unconvincing. If
he was not agreeable with the contracts, he could have
prevented petitioner from delivering the payments, or if this
was impossible, he could have immediately instituted the
action for reconveyance and have the payments consigned
with the court. None of these happened. As found by the trial
court and the Court of Appeals, upon learning of the sale,
respondent negotiated for the increase of the purchase price
while receiving the installment payments. It was only when
respondent failed to convince petitioner to increase the price
that the former instituted the complaint for reconveyance of
the properties. Clearly, respondent was agreeable to the
contracts, only he wanted to get more. Further, there is no
showing that respondent returned the payments or made an
offer to do so. This bolsters the view that indeed there was
ratification. One cannot negotiate for an increase in the price
in one breath and in the same breath contend that the
contract of sale is void.
70. Coronel v. Constantino (2003)
Facts:
The subject property consists of two parcels of land in
Hagonoy, Bulacan. The property is originally owned by Honoria
Aguinaldo. One-half of it was inherited by: (1) Emilia together
with her sons (2) Benjamin, (3) Catalino and Ceferino. The
other half was inherited by: (a) Florentino and (b) Aurea.
Florentino and Aurea filed a complaint for declaration of
ownership and quieting of title against Emilia and Benjamin.
The complaint alleged that Emilia and her sons sold their
parcel of land to third persons, and those third persons sold
the same land to Florentino and Aurea.
The RTC and the CA ruled in favor of the plaintiffs.
A careful reading of the Kasulatan ng Bilihang Patuluyan
which is a private document, not having been duly notarized,
shows that only the share of Emilia in the subject property was
sold because Benjamin did not sign the document and the
shares of Ceferino and Catalino were not subject of the sale.
But the CA ruled that through their inaction and silence, the
three sons of Emilia are considered to have ratified the
aforesaid sale of the subject property by their mother.
Issue: Whether or not Benjamin, Ceferino and Catelino are
deemed to have ratified the sale made by their mother, Emilia.
Held: No. Art. 1317 of the Civil Code provides: No one may
contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him. A
contract entered into in the name of another by one who has
no authority or legal representation or who has acted beyond
his powers shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting
party.
Ratification means that one under no disability voluntarily
adopts and gives sanction to some unauthorized act or
defective proceeding, which without his sanction would not be
binding on him. It is this voluntary choice, knowingly made,
which amounts to a ratification of what was theretofore
 Civil Law Review II 4th Assignment
unauthorized, and becomes the authorized act of the party so
making the ratification.
No evidence was presented to show that the three
brothers were aware of the sale made by their mother.
Unaware of such sale, Catalino, Ceferino and Benjamin could
not be considered as having voluntarily remained silent and
knowingly chose not to file an action for the annulment of the
sale. Their alleged silence and inaction may not be interpreted
as an act of ratification on their part.
The sale is valid insofar as the share of petitioner Emilia
Meking Vda. de Coronel is concerned. The due execution of
the Kasulatan ng Bilihang Patuluyan was duly established when
petitioners, through their counsel, admitted during the pre-trial
conference that the said document was signed by Emilia.[12]
While petitioners claim that Emilia erroneously signed it under
the impression that it was a contract of mortgage and not of
sale, no competent evidence was presented to prove such
allegation. Hence, Jess C. Santos and Priscilla Bernardo, who
purchased the share of Emilia, became co-owners of the
subject property together with Benjamin and the heirs of
Ceferino and Catalino. As such, Santos and Bernardo could
validly dispose of that portion of the subject property
pertaining to Emilia in favor of herein private respondents
Constantino and Buensuceso. However, the particular portions
properly pertaining to each of the coowners are not yet
defined and determined as no partition in the proper forum or
extrajudicial settlement among the parties has been effected
among the parties. Consequently, the prayer of respondents
for a mandatory or prohibitory injunction lacks merit.
71. Laudico and Harden v. Arias (1922)
Facts:
Vicente Arias owned a building on Carriedo Street. He
wrote a letter to Mamerto Laudico giving him an option to
lease the building to a third person. Later on, Laudico
presented Fred Harden as the party desiring to lease the
building. Thus, Laudico wrote a letter to Arias advising him
that he accepts his proposal. This letter was received by Arias
at 2:53 PM. But on that same day at 11:25 am, Laudico
received a letter from Arias withdrawing his offer to lease the
building. Laudico thus sued Arias for specific performance.
Issue: Whether or not a contract was perfected between Arias
and Laudico.
Held: No. When Arias sent his letter of withdrawal to Laudico,
he had not yet received the letter of acceptance, and when it
reached him, he had already sent his letter of withdrawal.
Under these facts we believe that no contract was perfected
between the plaintiffs and the defendants.
Under article 1262, paragraph 2, of the Civil Code, an
acceptance by letter does not have any effect until it comes to
the knowledge of the offerer. Therefore, before he learns of
the acceptance, the latter is not yet bound by it and can still
withdraw the offer. Consequently, when Mr. Arias wrote Mr.
Laudico, withdrawing the offer, he had the right to do so,
inasmuch as he had not yet receive notice of the acceptance.
And when the notice of the acceptance was received by Mr.
Arias, it no longer had any effect, as the offer was not then in
existence, the same having already been withdrawn. There
was no meeting of the minds, through offer and acceptance,
which is the essence of the contract. While there was an offer,
there was no acceptance, and when the latter was made and
could have a binding effect, the offer was then lacking. Though
both the offer and the acceptance existed, they did not meet
to give birth to a contract.
With regard to contracts between absent persons there
are two principal theories, to wit, one holding that an
acceptance by letter of an offer has no effect until it comes to
the knowledge of the offerer, and the other maintaining that it
is effective from the time the letter is sent. The Civil Code, in
paragraph 2 of article 1262, has adopted the first theory and,
according to its most eminent commentators, it means that,
before the acceptance is known, the offer can be revoked, it
not being necessary, in order for the revocation to have the
effect of impeding the perfection of the contract, that it be
known by the acceptant.
72. Villanueva v. CA (1995)
Facts:
The two subject lots were owned by Spouses Celestino
and Miguela Villanueva. Miguela sought the help Jose Viudez,
an OIC of the Philippine Veterans Bank Makati if she could
obtain a loan from the bank. Viudez instructed her to surrender
the titles of the lots as collaterals and to execute a deed of
sale covering the two parcels of land, which she did but
without the signature of her husband. Later on, she was
surprised to learn that a new certificate of title was issued in
favor of PVB but she did not obtain any loan.
The two lots were about to be sold at auction. A certain
Idelfonso Ong offered to buy the lands, but in the meantime
he went abroad. While Ong was still out of the country, it
turned out that PVB approved his offer. But when Ong came
back, PVB became insolvent and was now under the control of
the Central Bank. Meanwhile, Miguela filed her claim over the
lands with the liquidation court.
The RTC, acting as liquidation court, ruled in favor of
Miguela, but the CA reversed.
Issue: Whether or not Ong is entitled to the lots on the basis
of PVBs previous approval of his offer.
Held: No. There is no doubt that the approval of Ong's offer
constitutes an acceptance, the effect of which is to perfect the
contract of sale upon notice thereof to Ong. 29 The peculiar
circumstances in this case, however, pose a legal obstacle to
his claim of a better right and deny support to the conclusion
of the Court of Appeals. Ong did not receive any notice of the
approval of his offer. It was only sometime in mid-April 1985
when he returned from the United States and inquired about
the status of his bid that he came to know of the approval. It
must be recalled that the PVB was placed under receivership
pursuant to the MB Resolution of 3 April 1985 after a finding
that it was insolvent, illiquid, and could not operate profitably,
and that its continuance in business would involve probable
loss to its depositors and creditors. The PVB was then
prohibited from doing business in the Philippines, and the
receiver appointed was directed to "immediately take charge of
its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefit of
its creditors, exercising all the powers necessary for these
purposes.
 Civil Law Review II 4th Assignment
Under Article 1323 of the Civil Code, an offer becomes
ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed. The
reason for this is that: The contract is not perfected except by
the concurrence of two wills which exist and continue until the
moment that they occur. The contract is not yet perfected at
any time before acceptance is conveyed; hence, the
disappearance of either party or his loss of capacity before
perfection prevents the contractual tie from being formed.
In a nutshell, the insolvency of a bank and the consequent
appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property, Applying Article 1323 of
the Civil Code, Ong's offer to purchase the subject lots became
ineffective because the PVB became insolvent before the
bank's acceptance of the offer came to his knowledge. Hence,
the purported contract of sale between them did not reach the
stage of perfection. Corollarily, he cannot invoke the resolution
of the bank approving his bid as basis for his alleged right to
buy the disputed properties.
Nor may the acceptance by an employee of the PVB of
Ong's payment of P100,000.00 benefit him since the receipt of
the payment was made subject to the approval by the Central
Bank liquidator of the PVB.
73. Adelfa Properties, Inc. v. CA (1995)
Facts:
Private respondents and their brothers Jose and
Dominador were the registered CO-OWNERS of a parcel of
land in Las Pinas, covered by a TCT. Jose and Dominador sold
their share (eastern portion of the land) to Adelfa. Thereafter,
Adelfa expressed interest in buying the western portion of the
property from private respondents herein. Accordingly, an
exclusive Option to Purchase was executed between Adelfa
and Private respondents and an option money of 50,000 was
given to the latter. A new owners copy of the certificate of title
was issued (as the copy with respondent Salud was lost) was
issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons
as a case was filed (RTC Makati) against Jose and Dominador
and Adelfa, because of a complaint in a civil case by the
nephews and nieces of private respondents herein. As a
consequence, Adelfa, through a letter, informed the private
respondents that it would hold payment of the full purchase
price and suggested that they settle the case with their said
nephews and nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are canceling
the transaction. Atty Bernardo made offers but they were all
rejected.
RTC Makati dismissed the civil case. A few days after,
private respondents executed a Deed of Conditional Sale in
favor of Chua, over the same parcel of land. Atty Bernardo
wrote private respondents informing them that in view of the
dismissal of the case, Adelfa is willing to pay the purchase
price, and requested that the corresponding deed of Absolute
Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a
check representing the refund of half the option money paid
under the exclusive option to purchase, and requested Adelfa
to return the owners duplicate copy of Salud. Adelfa failed to
surrender the certificate of title, hence the private respondents
filed a civil case before the RTC Pasay, for annulment of
contract with damages. The trial court directed the cancellation
of the exclusive option to purchase. On appeal, respondent CA
affirmed in toto the decision of the RTC hence this petition.
Issue: Whether or not the agreement between Adelfa and
private respondents was strictly an option contract.
Held: No, it was a contract to sell. The test in determining
whether a contract is a contract of sale or purchase or a
mere option is whether or not the agreement could be
specifically enforced. There is no doubt that the obligation of
petitioner to pay the purchase price is specific, definite and
certain, and consequently binding and enforceable. Had private
respondents chosen to enforce the contract, they could have
specifically compelled petitioner to pay the balance. This is
distinctly made manifest in the contract itself as an integral
stipulation, compliance with which could legally and definitely
be demanded from petitioner as a consequence. While there is
jurisprudence to the effect that a contract which provides that
the initial payment shall be totally forfeited in case of default in
payment is to be considered as an option contract, still we are
not inclined to conform with the findings of respondent court
and the court a quo that the contract executed between the
parties is an option contract, for the reason that the parties
were already contemplating the payment of the balance of the
purchase price, and were not merely quoting an agreed value
for the property. The term balance, connotes a remainder or
something remaining from the original total sum already
agreed upon. In other words, the alleged option money was
actually earnest money which was intended to form part of the
purchase price. The amount was not distinct from the cause or
consideration for the sale of the property, but was itself a part
thereof. It is a statutory rule that whenever earnest money is
given in a contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract. It
constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by
the buyer to the seller to bind the bargain.
There are clear distinctions between earnest money and
option money, viz.: (a) earnest money is part of the purchase
price, while option money ids the money given as a distinct
consideration for an option contract; (b) earnest money is
given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest
money is given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is not
required to buy. The aforequoted characteristics of earnest
money are apparent in the so-called option contract under
review, even though it was called option money by the
parties. In addition, private respondents failed to show that the
payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the
exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element
of the performance of petitioners obligation under the contract
to sell.
Since the contract was that of to sell, Art. 1590 applies in
this case. It provides: Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should he
have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused
 Civil Law Review II 4th Assignment
the disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency,
the vendee shall be bound to make the payment. A mere act
of trespass shall not authorize the suspension of the payment
of the price.
The private respondents may no longer be compelled to
sell and deliver the subject property to petitioner for two
reasons, that is, petitioners failure to duly effect the
consignation of the purchase price after the disturbance had
ceased; and, secondarily, the fact that the contract to sell had
been validly rescinded by private respondents. The mere
sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a
valid tender of payment. Besides, a mere tender of payment is
not sufficient to compel private respondents to deliver the
property and execute the deed of absolute sale. It is
consignation which is essential in order to extinguish
petitioners obligation to pay the balance of the purchase price.
The rule is different in case of an option contract or in legal
redemption or in a sale with right to repurchase, wherein
consignation is not necessary because these cases involve an
exercise of a right or privilege (to buy, redeem or repurchase)
rather than the discharge of an obligation, hence tender of
payment would be sufficient to preserve the right or privilege.
This is because the provisions on consignation are not
applicable when there is no obligation to pay. A contract to
sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege of a right.
Consequently, performance or payment may be effected not
by tender of payment alone but by both tender and
consignation. Furthermore, petitioner no longer had the right
to suspend payment after the disturbance ceased with the
dismissal of the civil case filed against it. Necessarily,
therefore, its obligation to pay the balance again arose and
resumed after it received notice of such dismissal.
Unfortunately, petitioner failed to seasonably make payment.
By reason of petitioners failure to comply with its obligation,
private respondents elected to resort to and did announce the
rescission of the contract through its letter to petitioner. That
written notice of rescission is deemed sufficient under the
circumstances. Article 1592 of the Civil Code which requires
rescission either by judicial action or notarial act is not
applicable to a contract to sell. Furthermore, judicial action for
rescission of a contract is not necessary where the contract
provides for automatic rescission in case of breach, as in the
contract involved in the present controversy. In the case at
bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which
specified the grounds therefore, it failed to reply thereto or
protest against it. By such cavalier disregard, it has been
effectively estopped from seeking the affirmative relief it now
desires but which it had theretofore disdained.
74. Serra v. CA (1994)
Facts:
In 1975, a Lease Contract with Option to Buy was
executed between Federico Serra and the Rizal Commercial
Banking Corporation (RCBC). It was agreed that Serra shall
lease to RCBC his land from the year 1975 to 2000. It was also
agreed that within 10 years from 1975, RCBC shall exercise an
option whether or not to buy the said lot at a price not
exceeding P210.00 per square meter. However, no option
money was provided for in the contract hence, RCBC did not
pay any option money for the exercise of such option to buy.
What was provided, however, was a clause which states that
in case RCBC fails to exercise such option to buy, it shall forfeit
all improvements it made (or will make) on said land in favor
of Serra. In 1984, RCBC communicated to Serra that it now
wants to buy the said land. Serra however refused. RCBC sued
Serra. Serra now contends that the option to buy was
ineffective because it was not supported by any consideration
distinct from the price hence, it is not binding upon him.
Issue: Whether or not there was a consideration distinct from
the purchase price in this case.
Held: Yes. The Supreme Court ruled that in this case, the
consideration which is distinct from the price was the
agreement in the contract which stated that if RCBC fails to
exercise its option to buy, it shall transfer all improvements
made on the land [by RCBC] in favor of Serra. Such is an
agreement more onerous than the payment of option money.
Since there is a consideration distinct from the price, Serra is
bound by the option contract. Therefore, he cannot refuse to
sell the land to RCBC.
A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion"
thereto. These types of contracts are as binding as ordinary
contracts because in reality, the party who adheres to the
contract is free to reject it entirely. In the case at bar, the
Supreme Court did not find the situation to be inequitable
because petitioner is a highly educated man, who, at the time
of the trial was already a CPA-Lawyer, and when he entered
into the contract, was already a CPA, holding a respectable
position with the Metropolitan Manila Commission. It is evident
that a man of his stature should have been more cautious in
transactions he enters into, particularly where it concerns
valuable properties. Also, in the present case, the
consideration is even more onerous on the part of the lessee
since it entails transferring of the building and/or
improvements on the property to petitioner, should respondent
bank fail to exercise its option within the period stipulated.
75. Malbarosa v. CA (2003)
Facts:
Here in petitioner was the president and general manager
of Philtectic Corp., a subsidiary of respondent SEADC. Being an
officer, he was issued a car and membership in the
Architectural Center. One day he intimidated with the vice-
chairman of the BoD of respondent his desire to retire and he
requested that his incentive compensation be paid to him as
president of Philtectic. He then tendered his resignation to said
VP. One of the officer met with petitioner and informed him
that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer to
petitioner stating therein acceptance of petitioners resignation
and advised him that he is entitled to P251k as his incentive
compensation. In the same letter, the VP proposed the
satisfaction of his incentive by giving him the car the company
issued and the membership in the Architectural Center will be
transferred to him, instead of cash. Petitioner was required by
respondent through the VP to affix his signature in the letter if
 Civil Law Review II 4th Assignment

he was agreeable to the proposal. The letter was given to the constitutes a counter-offer which the offeror may accept or
petitioner by the officer who told him that he was supposed to reject.
get P395k.Petitioner was dismayed when he received the
The contract is not perfected if the offeror revokes or
letter-offer and refused to sign it as required by respondent if
withdraws its offer and the revocation or withdrawal of the
he was agreeable to it.
offeror is the first to reach the offeree.
Two weeks later, respondent company demanded the
In the case at bar, the respondent made its offer through
return the car and turn over the membership in the
its VP. On March 16, the officer handed over the original letter-
Architectural Center. Petitioner wrote the counsel of
offer to petitioner. The respondent required the petitioner to
respondent telling him that he cannot comply with the demand
accept by affixing his signature and the date in the letter offer,
since he already accepted the offer fourteen (14) days after it
thus foreclosing an implied acceptance or any other mode of
was made. In his letter, he enclosed a Xerox of the original
acceptance. And it is for a fact that the petitioner did not
with his affixed signature as required.
accept or reject the offer for he needed time to decide whether
With his refusal, respondent instituted an action for to accept or reject. Although the petitioner claims that he had
recovery with replevin. In his Answer to the complaint, the affixed his conformity to the letter-offer on March 28, 1990,
petitioner, as defendant therein, alleged that he had already the petitioner failed to transmit the said copy to the
agreed on March 28, 1990 to the March 14, 1990 Letter-offer respondent. It was only on April 7, 1990 when the petitioner
of the respondent, the plaintiff therein, and had notified the appended to his letter to the respondent a copy of the said
said plaintiff of his acceptance; hence, he had the right to the March 14, 1990 Letter-offer bearing his conformity that he
possession of the car. notified the respondent of his acceptance to said offer. But
then, the respondent, through Philtectic Corporation, had
After the trial, judgment was rendered against petitioner.
already withdrawn its offer and had already notified the
The trial court opined that there existed no perfected contract
petitioner of said withdrawal via respondents letter dated April
between the petitioner and the respondent on the latters
4, 1990 which was delivered to the petitioner on the same day.
March 14, 1990 Letter-offer for failure of the petitioner to
Indubitably, there was no contract perfected by the parties on
effectively notify the respondent of his acceptance of said
the March 14, 1990 Letter-offer of the respondent.
letter-offer before the respondent withdrew the same. He
appealed to the CA which affirmed the decision of the trial On the second issue. It is necessarily so because there
court. Hence, this present appeal. was no need for the respondent to withdraw its offer because
the petitioner had already rejected the respondents offer on
Issue: Whether or not there was a valid acceptance on his
March 16, 1990 when the petitioner received the original of the
part of the March 14, 1990 Letter-offer of the respondent.
March 14, 1990 Letter-offer of the respondent without the
Held: No. Under Article 1319 of the New Civil Code, the petitioner affixing his signature on the space therefor.
consent by a party is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. An offer may be reached at any time
until it is accepted. An offer that is not accepted does not give
rise to a consent. To produce a contract, there must be
acceptance of the offer which may be express or implied but
must not qualify the terms of the offer. The acceptance must
be absolute, unconditional and without variance of any sort
from the offer. The acceptance of an offer must be made
known to the offeror. Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no
real concurrence of offer and acceptance.
The offeror may withdraw its offer and revoke the same
before acceptance thereof by the offeree. The contract is
perfected only from the time an acceptance of an offer is made
known to the offeror. If an offeror prescribes the exclusive
manner in which acceptance of his offer shall be indicated by
the offeree, an acceptance of the offer in the manner
prescribed will bind the offeror. On the other hand, an attempt
on the part of the offeree to accept the offer in a different
manner does not bind the offeror as the absence of the
meeting of the minds on the altered type of acceptance.
An offer made inter praesentes must be accepted
immediately. If the parties intended that there should be an
express acceptance, the contract will be perfected only upon
knowledge by the offeror of the express acceptance by the
offeree of the offer. An acceptance which is not made in the
manner prescribed by the offeror is not effective but