CASE DIGEST CONTRACT PART 3 1
MANILA RAILROAD VS LA COMPANIA
TRANSATLANTICA
Facts:
Two locomotive boilers owned by The Manila
Railroad Company arrived at Manila via the
Steamship Alicante owned by Compañia
Trasatlantica de Barcelona. The equipment of
the ship for discharging heavy cargo was not
sufficiently strong to handle these boilers, so
the Steamship Company had to procure
assistance from The Atlantic, Gulf and Pacific
Company (hereafter called the Atlantic
Company). The service to be performed by the
Atlantic Company consisted in bringing its
floating crane alongside the Alicante, lifting the
boilers out of the ship's hold, and transferring
them to a barge which would be placed ready
to receive them.
While the boiler was being hoisted, it was not
properly done as the 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.
(natagak ang boiler unya nakaduha pa jud xa
natagak)
The boiler was badly damaged that it had to be
reshipped to England where it was rebuilt, and
afterwards was returned to Manila. The
Railroad Company's damage by reason of the
cost of repairs, expenses, and loss of the use
of the boiler proved to be P22,343.29; and as
to the amount of the damage so resulting there
is practically no dispute. To recover these
damages the present action was instituted by
the Railroad Company against the Steamship
Company who in turn caused the Atlantic
Company to be brought in as a codefendant,
and insisted that whatever liability existed
should be fixed upon the Atlantic Company as
an independent contractor who had
undertaken to discharge the boilers and had
become responsible for such damage as had
been done.
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.
Issue:
(1) Is the Steamship Company liable to the
plaintiff by reason of having delivered the
boiler in question in a damaged condition? (2)
Is the Atlantic Company 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) Is the
Atlantic Company directly liable to the plaintiff,
as the trial court held?
Ruling:
The accident is to be attributed to the failure of
Leyden (foreman) to exercise the degree of
care which an ordinarily competent and
prudent person would have exhibited under
the circumstances which then confronted him.
This conclusion of fact cannot be refuted; and,
indeed, no attempt is here made by the
appellant to reverse this finding of the trial
court.
It will be observed that a contractual relation
existed between the Railroad Company and
the Steamship Company; and the duties of the
latter with respect to the carrying and delivery
of the boilers are to be discovered by
considering the terms and legal effect of that
contract. A contractual relation also existed
between the Steamship Company and the
Atlantic Company; and the duties owing by
the latter to the former with respect to the lifting
and the transferring of the boilers are likewise
to be discovered by considering the terms and
legal effect of the contract between these
parties. On the other hand, no contractual
relation existed directly between the
Railroad Company and the Atlantic
Company.
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 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. The contract to transport and

deliver at the port of Manila a locomotive
boiler, which was received by it in proper
condition, is not complied with by delivery at
the port of destination of a mass of iron the
utility of which had been destroyed.
The Steamship Company cannot escape
liability by reason of the fact that it employed a
competent independent contractor to
discharge the boilers..
Defenses of Atlantic
Atlantic contends 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 Atlantic
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.
At the hearing, the president of the Atlantic
company said that the agreement was that
their company would not assume
responsibility for any damage.
The Atlantic Company offered in evidence a
number of letters which had been written by it
at different times, extending over a period of
years, in response to inquiries made by other
firms and persons in Manila concerning the
terms upon which the Atlantic Company would
make heavy lifts. The company recognized its
duty to exercise due supervisory care; and the
exemption from liability, whatever may have
been its precise words, had reference to
disasters which might result from some
inherent hidden defect in the lifting apparatus
or other unforeseen occurrence not directly
attributable to negligence of the company in
the lifting operations. Neither party could have
supposed for a moment that it was intended to
absolve the Atlantic Company from its duty to
use due care in the work.
The court said that if the exemption should be
understood in the sense which counsel for the
Atlantic Company now insists it should bear,
that is, as an absolute exemption from all
responsibility for negligence, it is evident that
CASE DIGEST CONTRACT PART 3 2
the agreement was a most inequitable and
unfair one, and hence it is one that the
Steamship Company can not be lightly
assumed to have made. Understood in that
sense it is the equivalent of licensing the
Atlantic Company to perform its tasks in any
manner and fashion that it might please, and
to hold it harmless from the consequences.
There may have been in the minds of the
officials of the Atlantic Company an idea that
the promise to use due care in the lifting
operations was not accompanied by a legal
obligation, such promise being intended
merely for its moral effect as an assurance to
the steamship company that the latter might
rely upon the competence and diligence of the
employees of the Atlantic Company to
accomplish the work in a proper way. The
contract can not be permitted to operate in this
one-sided manner. The two features of the
engagement, namely, the promise to use due
care and the exemption from liability for
damage should be so construed as to give
some legal effect to both. The result is, as
already indicated, that the Atlantic Company
was bound by its undertaking to use due care
and that the exemption was intended to cover
accidents due to hidden defects in the
apparatus or other unforeseeable occurrences
not having their origin in the immediate
personal negligence of the party in charge of
the operations.
W/N Atlantic should be absolved
We now proceed to consider the contention
that the Atlantic Company should be absolved
from liability to the Steamship Company under
the last paragraph of article 1903 of the Civil
Code, which declares that the liability there
referred to shall cease when the persons
mentioned therein prove that they employed
all the diligence of a good father of a family to
avoid the damage. Even when Atlantic used
proper care in the selection of Leyden, the
obligation of the Atlantic Company was
created by contract, and article 1903 is not
applicable to negligence arising in the
course of the performance of a contractual
obligation. Article 1903 is exclusively
concerned with cases where the

negligence arises in the absence of
agreement.
In discussing the liability of the Steamship
Company to the plaintiff Railroad Company we
have already shown that a party is bound to
the full performance of his contractual
engagements under articles 1101 et seq. of
the Civil Code, and other special provisions of
the Code relative to contractual obligations;
and if he falls short of complete performance
by reason of his own negligence or that of any
person to whom he may commit the work, he
is liable for the damages resulting therefrom..
It is desirable, however, in this connection, to
bring out somewhat more fully the distinction
between negligence in the performance of a
contractual obligation (culpa contractual) and
negligence considered as an independent
source of obligation between parties not
previously bound (culpa aquiliana).
Justice Tracey, the author of the opinion from
which we have quoted, proceeds to observe
that Manresa, in commenting on articles 1102
and 1104, has described these two species of
negligence as contractual and extra-
contractual, the latter being the culpa
aquiliana of the Roman law. "This terminology
is unreservedly accepted by Sanchez Roman
(Derecho Civil, fourth section, chapter XI,
article II, No. 12), and the principle stated is
supported by decisions of the supreme court
of Spain, among them those of November 20,
1896 (80 Jurisprudencia Civil, No. 151), and
June 27, 1894 (75 Jurisprudencia Civil, No.
182.)"
The principle that negligence in the
performance of a contract is not governed by
article 1903 of the Civil Code but rather by
article 1104 of the same Code was directly
applied by this court in the case of Baer Senior
& Co.'s Successors vs. Compañia Maritima (6
Phil. Rep., 215); and the same idea has been
impliedly if not expressly recognized in other
cases (N. T. Hashim & Co. vs. Rocha & Co.,
18 Phil. Rep., 315; Tan Chiong Sian vs.
Inchausti & Co., 22 Phil. Rep., 152).
What has been said suffices in our opinion to
demonstrate that the Atlantic Company is
liable to the Steamship Company for the
CASE DIGEST CONTRACT PART 3 3
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.
Can the Atlantic Company be held directly
liable to the Railroad Company?
Having regard then to the bare fact that the
Atlantic Company undertook to remove the
boiler from the ship's hold and for this purpose
took the property into its power and control,
there arose a duty to the owner to use due
care in the performance of that service and to
avoid damaging the property in the course of
such operation. This duty was obviously in
existence before the negligent act was done
which resulted in damage, and said negligent
act may, if we still ignore the existence of the
express contract, be considered as an act
done in violation of this duty.
The duty thus to use due care is an implied
obligation, of a quasi contractual nature,
since it is created by implication of law in
the absence of express agreement. The
conception of liability with which we are here
confronted is somewhat similar to that which is
revealed in the case of the depositary, or
commodatary, whose legal duty with respect
to the property committed to their care is
defined by law even in the absence of express
contract; and it can not be doubted that a
person who takes possession of the property
of another for the purpose of moving or
conveying it from one place to another, or for
the purpose of performing any other service in
connection therewith (locatio operis faciendi),
owes to the owner a positive duty to refrain
from damaging it, to the same extent as if an
agreement for the performance of such
service had been expressly made with the
owner. The obligation here is really a species
of contract le, and it has its source and
explanation in the vital fact that the active party
has taken upon himself to do something with
or to the property and has taken it into his
power and control for the purpose of
performing such service. (Compare art. 1889,
Civil Code.)

In the passage which we have already quoted
from the decision in the Rakes case this Court
recognized the fact that the violation of a quasi
contractual duty is subject to articles 1101,
1103, and 1104 of the Civil Code and not
within the purview of article 1903. Manresa
also, in the paragraph reproduced above, is of
the opinion that negligence, considered as a
substantive and independent source of
liability, does not include cases where the
parties are previously bound by any other
obligation. Again, it is instructive in this
connection to refer to the contents of article
1103 of the Civil Code, where it is declared
that the liability proceeding from negligence is
demandable in the fulfillment of all kinds of
obligations. These words evidently
comprehend both forms of positive
obligations, whether arising from express
contract or from implied contract (quasi
contract).
In this connection it is instructive to recall the
celebrated case of Coggs vs. Bernard (2 Ld.
Raym, 909), decided in the court of the King's
Bench of England in the year 1703. The action
was brought by the owner of certain casks of
brandy to recover damages from a person who
had undertaken to transport them from one
place to another. It was alleged that in so doing
the defendant so negligently and improvidently
put them down that one of the casks was
staved and the brandy lost. The complaint did
not allege that the defendant was a common
carrier or that he was to be paid for his
services. It was therefore considered that the
complaint did not state facts sufficient to
support an action for breach of any express
contract. This made it necessary for the court
to go back to fundamental principles and to
place liability on the ground of a violation of the
legal duty incident to the mere fact of carriage.
Said Powell, J.: "An action indeed will not lie
for not doing the thing, for want of a sufficient
consideration; but yet if the bailee will take the
goods into his custody, he shall be answerable
for them; for the taking of the goods into his
custody is his own act." So Gould, J.: " . . . any
man that undertakes to carry goods is liable to
an action, be he a common carrier or whatever
he is, if through his neglect they are lost or
come to any damage: . . .." Behind these
CASE DIGEST CONTRACT PART 3 4
expressions was an unbroken line of ancient
English precedents holding persons liable for
damage inflicted by reason of a misfeasance
in carrying out an undertaking. The principle
determined by the court in the case cited is
expressed in the syllabus in these words: "If a
man undertakes to carry goods safely and
securely, he is responsible for any damage
they may sustain in the carriage through his
neglect, though he was not a common carrier
and was to have nothing for the carriage."
Though not stated in so many words, this
decision recognizes that from the mere fact
that a person takes the property of another into
his possession and control there arises an
obligation in the nature of an assumpsit that he
will use due care with respect thereto. This
must be considered a principle of universal
jurisprudence, for it is consonant with justice
and common sense and as we have already
seen harmonizes with the doctrine above
deduced from the provisions of the Civil Code.
The conclusion must therefore be that 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.
Such damages would have been demandable
under article 1103 of the Civil Code and the
action would not have been subject to the
qualification expressed in the last paragraph of
article 1903.
The circumstance that a contract was made
between the Atlantic Company and the
Steamship Company introduces, however, an
important, and in our opinion, controlling factor
into this branch of the case. It cannot be
denied that the Steamship Company had
possession of this boiler in the capacity of
carrier and that, as such, it was authorized to
make a contract with the Atlantic Company to
discharge the same from the ship. Indeed, it
appears in evidence that even before the
contract of affreightment was made the
Railroad Company was informed that it would
be necessary for the Steamship Company to
procure the services of some contractor in the
port of Manila to effect the discharge, as the
ship's tackle was inadequate to handle heavy
 CASE DIGEST CONTRACT PART 3 5

cargo. It is therefore to be assumed that the of the plaintiff directly against the Atlantic
Railroad Company had in fact assented to the Company but also with respect to the
employment of a contractor to perform this absolution of the Steamship Company and the
service. further failure of the court to enter judgment in
favor of the latter against the Atlantic
Now, it cannot be admitted that a person who Company. The Compañia Trasatlantica de
contracts to do a service like that rendered by Barcelona should be and is hereby adjudged
the Atlantic Company in this case incurs a to pay to the Manila Railroad Company the
double responsibility upon entering upon sum of twenty two thousand three hundred
performance, namely, a responsibility to the forty three pesos and twenty nine centavos
party with whom he contracted, and another (P22,343.29), with interest from May 11, 1914,
entirely different responsibility to the owner, until paid; and when this judgment is satisfied,
based on an implied contract. The two the Compañia Trasatlantica de Barcelona is
liabilities can not in our opinion coexist. It is a declared to be entitled to recover the same
general rule that an implied contract never amount from the Atlantic Gulf & Pacific
arises where an express contract has been Company, against whom judgment is to this
made. end hereby rendered in favor of the Compañia
Trasatlantica de Barcelona. No express
If double responsibility existed in such a case adjudication of costs of either instance will be
as this, it would result that a person who had made. So ordered.
limited his liability by express stipulation might ||| (Manila Railroad Co. v. La Compa, G.R. No.
find himself liable to the owner without regard 11318, [October 26, 1918], 38 PHIL 875-901)
to the limitation which he had seen fit to
impose by contract. There appears to be no
possibility of reconciling the conflict that would
be developed in attempting to give effect to
those inconsistent liabilities. The contract
which was in fact made, in our opinion,
determines not only the character and extent
of the liability of the Atlantic Company but also
the person or entity by whom the obligation is
exigible. It is of course quite clear that if the
Atlantic Company had refused to carry out its
agreement to discharge the cargo, the plaintiff
could not have enforced specific performance
and could not have recovered damages for
non-performance. (Art. 1257, Civil Code;
Donaldson, Sim & Co. vs. Smith, Bell & Co., 2
Phil. Rep., 766; Uy Tam and Uy Yet vs.
Leonard, 30 Phil. Rep., 471.) In view of the
preceding discussion it is equally obvious that,
for lack of privity with the 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 Compañia Trasatlantica de Barcelona with
whom the contract of affreightment was made.

The judgment entered in the Court of First

Instance must, therefore, be reversed not only
with respect to the judgment entered in favor

G.R. No. 118248. April 5, 2000
DKC HOLDINGS CORPORATION V. CA
FACTS:
The subject of the controversy is a 14,021
square meter parcel of land located in
Valenzuela, which was originally owned by
private respondent Victor U. Bartolome’s
deceased mother, Encarnacion Bartolome,
under TCT No. B-37615 of the Register of
Deeds of Metro Manila, District III. This lot was
in front of one of the textile plants of petitioner
and, as such, was seen by the latter as a
potential warehouse site. On March 16, 1988,
petitioner entered into a Contract of Lease with
Option to Buy with Encarnacion Bartolome,
whereby petitioner was given the option to
lease or lease with purchase the subject land,
which option must be exercised within a period
of two years counted from the signing of the
Contract. In turn, petitioner undertook to pay
P3,000 a month as consideration for the
reservation of its option. Within the two-year
period, petitioner shall serve formal written
notice upon the lessor Encarnacion Bartolome
of its desire to exercise its option. The contract
also provided that in case petitioner chose to
lease the property, it may take actual
possession of the premises. In such an event,
the lease shall be for a period of six years,
renewable for another six years, and the
monthly rental fee shall be P15,000 for the first
six years and P18,000 for the next six years,
in case of renewal.
Petitioner regularly paid the monthly P3,000
provided for by the Contract to Encarnacion
until her death in January 1990. Thereafter,
petitioner coursed its payment to private
respondent Victor Bartolome, being the sole
heir of Encarnacion. Victor, however, refused
to accept these payments. Meanwhile, on
January 10, 1990, Victor executed an
Affidavit of Self-Adjudication over all the
properties of Encarnacion, including the
subject lot. Accordingly, respondent Register
of Deeds cancelled TCT No. B-37615 and
issued Transfer Certificate of Title No. V-
14249 in the name of Victor Bartolome.
On March 14, 1990, petitioner served upon
Victor, via registered mail, notice that it was
exercising its option to lease the property,
tendering the amount of P15,000 as rent for
the month of March. Again, Victor refused to
CASE DIGEST CONTRACT PART 3 6
accept the tendered rental fee and to
surrender possession of the property to
petitioner. On April 23, 1990, petitioner filed
a complaint for specific performance and
damages against Victor and the Register of
Deeds. Petitioner prayed for the surrender
and delivery of possession of the subject land
in accordance with the Contract terms; the
surrender of title for registration and
annotation thereon of the Contract. RTC
dismissed the complaint.
ISSUE: W/N the Contract of Lease with Option
to Buy entered into by the late Encarnacion
Bartolome with petitioner was terminated upon
her death and does not bind her sole heir,
Victor, even after her demise
HELD: No, under both Article 1311 of the Civil
Code and jurisprudence, the legal heir, Victor,
is bound by the subject Contract of Lease with
Option to Buy executed by his predecessor-in-
interest, Encarnacion. 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 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.
The nature of intransmissible rights as
explained by Arturo Tolentino, an eminent
civilist, is as follows:
"Among contracts which are intransmissible
are those which are purely personal, either by
provision of law, such as in cases of
partnerships and agency, or by the very nature
of the obligations arising therefrom, such as
those requiring special personal qualifications
of the obligor. It may also be stated that
contracts for the payment of money debts are
not transmitted to the heirs of a party, but
constitute a charge against his estate. Thus,
where the client in a contract for professional
services of a lawyer died, leaving minor heirs,
and the lawyer, instead of presenting his claim
for professional services under the contract to
 CASE DIGEST CONTRACT PART 3 7

the probate court, substituted the minors as a property interest in the subject matter of the
parties for his client, it was held that the contract.
contract could not be enforced against the
minors; the lawyer was limited to a recovery on
the basis of quantum meruit."
It has also been held that a good measure for
determining whether a contract terminates
upon the death of one of the parties is whether
it is of such a character that it may be
performed by the promissor’s personal
representative. Contracts to perform personal
acts which cannot be as well performed by
others are discharged by the death of the
promissor. Conversely, where the service or
act is of such a character that it may as well
be performed by another, or where the
contract, by its terms, shows that
performance by others was contemplated,
death does not terminate the contract or
excuse nonperformance.

In the case at bar, there is no personal act

required from the late Encarnacion Bartolome.
Rather, the obligation of Encarnacion in the
contract to deliver possession of the subject
property to petitioner upon the exercise by the
latter of its option to lease the same may very
well be performed by her heir Victor.

As early as 1903, it was held that "(H)e who

contracts does so for himself and his
heirs." In 1952, it was ruled that if the
predecessor was duty-bound to reconvey land
to another, and at his death the reconveyance
had not been made, the heirs can be
compelled to execute the proper deed for
reconveyance. This was grounded upon the
principle that heirs cannot escape the legal
consequence of a transaction entered into by
their predecessor-in-interest because they
have inherited the property subject to the
liability affecting their common ancestor.
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 non-

performance 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

TRUST RECEIPTS LAW –
DANILO RICO II
SPOUSES QUIRINO V. DELA CRUZ and
GLORIA DELA CRUZ,
VS.
PLANTERS PRODUCTS, INC.
G. R. No. 158649; February 18, 2013;
Bersamin
Action: Petition for Review on certiorari.
Facts:
Gloria de la Cruz applied for and was granted
by respondent Planters Products, Inc. (PPI) a
regular credit line of P200,000 for a 60- day
term, with trust receipts as collaterals. She and
her husband, Quirino, submitted a list of their
assets in support of her credit application for
participation in the Special Credit Scheme
(SCS) of PPI.
Gloria signed a Trust Receipt/Special Credit
Scheme, indicating the invoice number,
quantity, value, and names of the agricultural
inputs she received “upon the trust” of PPI.
Gloria thereby subscribed to specific
undertakings.
The products were released to Gloria under
the supervision of Cristina G. Llanera of
PPI.The 60-day credit term lapsed without
Gloria paying her obligation under the Trust
Receipt/SCS.
PPI brought against Quirino and Gloria a
complaint for the recovery of a sum of money
with prayer for a writ of preliminary attachment.
PPI alleged that Gloria had violated the
“fiduciary undertaking in the Trust Receipt
agreement covering product withdrawals
under the Special Credit Scheme which were
subsequently charged to defendant dealer’s
regular credit line; therefore, she is guilty of
fraudulently misapplying or converting to her
own use the items delivered to her as
contained in the invoices.” It charged that
Gloria did not return the goods indicated in the
invoices and did not remit the proceeds of
sales.
In her answer, the petitioners alleged that
Gloria was only a marketing outlet of PPI
CASE DIGEST CONTRACT PART 3 8
under its SCS Program, not a dealer primarily
obligated to PPI for the products delivered to
her; that she had not collected from the
farmers participating in the SCS Program
because of the typhoon Kading that had
destroyed the participating farmers’ crops.
The RTC found that based on the terms and
conditions of the SCS Program, a creditor-
debtor relationship was created between
Gloria and PPI. It ordered petitioners to pay
the respondent. The CA affirmed the judgment
of the RTC.
Issue: whether the two transaction documents
signed by Gloria expressed the intent of the
parties to establish a creditor-debtor
relationship between the petitioner and the
respondent?
Ruling: Yes.
Gloria signed the application for credit facilities
indicating that a trust receipt would serve as
collateral for the credit line. Gloria, as “dealer,”
signed together with Quirino the list of their
assets that they tendered to PPI “to support
our credit application in connection with our
participation to your Special Credit Scheme.”
Gloria further signed the Trust Receipt/SCS
documents defining her obligations under the
agreement, and also the invoices pursuant to
the agreement with PPI, indicating her having
received PPI products on various dates.
These established circumstances comprised
by the contemporaneous and subsequent acts
of Gloria and Quirino that manifested their
intention to enter into the creditor-debtor
relationship with PPI show that the CAproperly
held the petitioners fully liable to PPI. The law
of contracts provides that in determining the
intention of the parties, their contemporaneous
and subsequent acts shall be principally
considered.
Consequently, the written terms of their
contract with PPI, being clear upon the
intention of the contracting parties, should be
literally applied.
The first circumstance was the credit line
of P200,000.00 that commenced the business
 CASE DIGEST CONTRACT PART 3 9

relationship between the parties. A credit line

is really a loan agreement between the WHEREFORE, the Court AFFIRMS the
parties. The second circumstance was the Decision by the Court of Appeals, subject to
offer by Gloria of trust receipts as her collateral the MODIFICATIONS.
for securing the loans that PPI extended to
her. The third circumstance was the offer of
Gloria and Quirino to have their conjugal real
properties beef up the collaterals for the credit
line. Gloria signed the list of the properties
involved as "dealer," thereby ineluctably
manifesting that Gloria considered herself a
dealer of the products delivered by PPI under
the credit line. The fourth circumstance had to
do with the undertakings under the trust
receipts. A close look at the Trust
Receipt/SCS indicates that the farmer-
participants were mentioned therein only with
respect to the duties and responsibilities that
Gloria personally assumed to undertake in
holding goods "in trust for PPI." Under the
notion of relativity of contracts embodied in
Article 1311 of the Civil Code, contracts take
effect only between the parties, their assigns
and heirs.

At this juncture, the Court clarifies that the

contract, its label notwithstanding, was not a
trust receipt transaction in legal contemplation
or within the purview of the Trust Receipts
Law (Presidential Decree No. 115) such that
its breach would render Gloria criminally liable
for estafa.

There are two obligations in a trust receipt

transaction. The first is covered by the
provision that refers to money under the
obligation to deliver it (entregarla) to the owner
of the merchandise sold. The second is
covered by the provision referring to
merchandise received under the obligation to
return it (devolverla) to the owner. However,
had PPI intended to charge Gloria with estafa,
it could have then done so. Instead, it brought
this collection suit, a clear indication that the
trust receipts were only collaterals for the
credit line as agreed upon by the parties.

As the assignor "with recourse" of the Trust

Agreement executed by the farmer
participating in the SCS, therefore, Gloria
made herself directly liable to PPI for the value
of the inputs delivered to the farmer-
participants.

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, Doña
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.
CASE DIGEST CONTRACT PART 3 10
-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
CASE DIGEST CONTRACT PART 3 11
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.
 CASE DIGEST CONTRACT PART 3 12

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

MARMONT RESORT HOTEL v. Sps. Guiang
and CA
“water supply”
Art. 1131: Stipulation Pour Autrui
 A Memorandum of Agreement was
executed between Maris Trading and
petitioner Marmont Resort Hotel
Enterprises, Inc. ("Marmont"), a
corporation engaged in hotel and resort
business. Under the agreement, Maris
Trading undertook to drill for water and
to provide all equipment necessary to
install and complete a water supply
facility to service the Marmont Resort
Hotel for a stipulated fee of P40,000.00.
 In fulfillment of its contract, Maris
Trading installed a water pump on a
portion of a parcel of land situated in
Olongapo City, then occupied by
respondent spouses Federico and
Aurora Guiang
 Five (5) months later, a second
Memorandum of Agreement was
executed between Maris Trading and
Aurora Guiang, with Federico Guiang
signing as witness.
 After some time, the water supply of the
Marmont Resort Hotel became
inadequate to meet the hotel's water
requirements. Petitioner Marmont
secured the services of another
contractor, which suggested that in
addition to the existing water pump, a
submersible pump be installed to
increase the pressure and improve the
flow of water to the hotel. Accordingly,
Juan Montelibano, Jr., manager of the
Marmont Resort Hotel, sought
permission from the Guiang spouses to
inspect the water pump which had been
installed on the portion of the land
previously occupied by the spouses
and to make the necessaryadditional
installations thereon. No such
permission, however, was granted.
 Petitioner Marmont filed a Complaint 2
against the Guiang spouses for
damages resulting from their refusal to
allow representatives of petitioner and
the second contractor firm entry into the
CASE DIGEST CONTRACT PART 3 13
water facility site. The Guiang spouses
(defendants below) denied having had
any previous knowledge of the first
Memorandum of Agreement and
asserted that the second Memorandum
of Agreement was invalid for not having
been executed in accordance with law.
ISSUE:
Is the case at a bar a case of stipulation pour
autrui under 1311 of the Civil Code?  YES
RULING:
 A closer scrutiny of the second and third
paragraphs of the second
Memorandum of Agreement discloses
that the first Memorandum of
Agreement, including the obligations
imposed thereunder upon Maris
Trading, had been acknowledged. The
above paragraphs establish, among
other things, that construction work had
been performed by Maris trading on the
land occupied by respondent spouses;
that such construction work had been
performed in accordance with terms
and conditions stipulated in the first
Memorandum of Agreement and that
the purpose of the work was to build a
water supply facility for petitioner
Marmont. The same excerpts also
show that the work so performed was
with the knowledge and consent of
the Guiang spouses, who were then
occupying the land. It is clear from the
foregoing stipulations that petitioner
Marmont was to benefit from the
second Memorandum of Agreement. In
fact, said stipulations appear to have
been designed precisely to benefit
petitioner and, thus, partake of the
nature of stipulations pour autrui,
contemplated in Article 1311 of the
Civil Code.
 A stipulation pour autrui is a
stipulation in favor of a third person
conferring a clear and deliberate
favor upon him,which stipulation is
found in a contract entered into by
parties neither of whom acted as
agent of the beneficiary.
 In the case at bar the purpose and
intent of the stipulating parties (Maris
Trading and respondent spouses) to
benefit the third person (petitioner
 CASE DIGEST CONTRACT PART 3 14

Marmont) is sufficiently clear in the alternative source of water for its hotel
second Memorandum of Agreement. which of course involved expenditure of
Marmont was not of course a party to money and perhaps loss of hotel
that second Agreement but, as revenues. We believe they should
correctly pointed out by the trial court respond in damages.
and the appellate court, the respondent
spouses could not have prevented
Maris Trading from entering the
property possessory rights over which
had thus been acquired by Maris
Trading.
 That respondent spouses remained in
physical possession of that particular
bit of land, is of no moment; they did so
simply upon the sufferance of Maris
Trading. Had Maris Trading, and not
the respondent spouses, been in
physical possession, we believe that
Marmont would have been similarly
entitled to compel Maris Trading to give
it (Marmont) access to the site involved.
 The two (2) courts failed to take
adequate account of the fact that the
sole purpose of Maris Trading in
acquiring possessory rights over that
specific portion of the land where well
and pump and piping had been
installed, was to supply the water
requirements of petitioner's hotel
purpose was known by respondent
spouses, is made explicit by the second
Memorandum of Agreement
 Trading itself had no need for a water
supply facility; neither did the
respondent spouses. The water facility
was intended solely for Marmont Resort
Hotel. The interest of Marmont
cannot therefore be regarded as
merely "incidental."
 Finally, even if it be assumed that the
second Memorandum of Agreement did
not constitute a stipulation pour autrui,
still respondent spouses, in the
circumstances of this case, must be
regarded as having acted contrary to
the principles of honesty, good faith and
fair dealing embodied in Articles 19 and
21 of the Civil Code when they refused
petitioner Marmont access to the water
facility to inspect and repair the same
and to increase its capacity and thereby
to benefit doing, respondent spouses
forced petitioner Marmont to locate an

Gutierrez Hermanos Vs Orense (Gr. No. L-
9188 1914)
Facts:
Orense is the owner a parcel of land (with
masonry house, and with the nipa roof
erected) situated in the pueblo of Guinobatan,
Albay. This property has been recorded 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 said property for P1,500 and that
the vendor Duran reserved to himself the right
to repurchase 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 contract
of 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 defendant refused to deliver
the property to the purchaser. Gutierrez
Hermanos then charged DURAN with estafa,
for having represented himself in the said
deed of sale to be the absolute owner of the
land. During that trial, when ORENSE was
called as a witness, he admitted that he
consented to Duran’s 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 against Engracio
Orense.
Petitioner Claims that The instrument of sale
of the property, executed by Jose Duran, was
publicly and freely confirmed and ratified by
ORENSE. In order to perfect the title to the
said property, all plaintiff had to do was
demand of Orense to execute in legal form a
deed of conveyance. But Orense refused to do
so, without any justifiable cause or reason, and
so he should be compelled to execute the said
deed by an express order of the court. Jose
DURAN is notoriously insolvent and cannot
reimburse the plaintiff company for the price of
the sale which he received, nor pay any sum
CASE DIGEST CONTRACT PART 3 15
for the losses and damages occasioned by the
sale. Also, Duran had been occupying the said
propertysince February 14, 1911, and refused
to pay the rental notwithstanding the demand
made upon him at the rate of P30 per month.
Plaintiff prays that the land and improvements
be declared as belonging legitimately and
exclusively to him, and that defendant be
ordered to execute in the plaintiff's behalf the
said instrument of transfer and conveyance of
the property and 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
authority to Jose DURAN to sell the property
to Gutierrez Hermanos. His knowledge of the
sale was acquired long after the execution of
the contract of sale between Duran and
Gutierrez Hermanos, and he did not
intentionally and deliberately perform any act
such as might have induced the plaintiff
company to believe that Duran was
empowered and authorized by the defendant.
Issue:
Whether Orense is bound by Duran’s act of
selling plaintiff’s property.
Held:
Yes. Ratio It having been proven at the trial
that he gave his consent to the said sale, it
follows that the defendant conferred verbal, or
at least implied, power of agency upon his
nephew Duran, who accepted it in the same
way by selling the said property. The principal
must therefore fulfill all the obligations
contracted by the agent, 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 the name of another
without being authorized by him or without his
legal representation according to law. A
contract executed in the name of another by
one who has neither his authorization nor legal
representation shall be void, unless it should
 CASE DIGEST CONTRACT PART 3 16

be ratified by the person in whose name it was

executed before being revoked 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 property effected 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.

CW ROSENSTOCK (as admin of estate of
HW ELSER) v
EDWIN BURKE, THE COOPER COMPANY
1924
Ponente: Avancena, J.
FACTS
1. Burke owned a yacht called
Bronzewing purchased in Australia for
sale
2. Burke mortgaged it for a loan of 100k
from Mr Avery (manager of Asia
Banking Corp), which he was unable to
pay
3. Elser wanted organize a yacht club and
sell the yacht to members of the club for
120k
4. Elser would keep 20k as commission
and 100k would go to Burke
5. Burke acquired a written option saying
that Elser confirmed his verbal offer of
120k for the yacht, with the offer open
for 30 days from 12 Feb 1922
6. Elser proposed conducting a pleasure
cruise the south, with prominent
businessmen aboard the yacht as a
means to advertise the yacht
7. To fix the yacht, Elser incurred
expenses of 6k because Burke had no
money
8. Elser attempted to loan 20k from Mr
Avery but the latter refused, in view of
the subsisting debt
9. Elser notified Burke that he was now
unwilling to purchase the yacht for more
than 70k and that he should talk to Mr
Avery
10. Elser wrote a letter (3 April 1922)
stating that he would pay 80k for the
yacht, with 10k downpayment and 5k
monthly installments, and would use
80k worth of stocks from Pickering Inc
as security, signed by Burke, Elser,
Avery
11. Current action is for Elser’s recovery of
6k used to fix the yacht
ARGUMENTS
1. Burke
CASE DIGEST CONTRACT PART 3 17
a. Agreement was that Burke
would pay for repairs in
exchange for gratuitous use of
the yacht
b. Cross-complaint: comply with
letter stating sale, and give
downpayment of 10k
TRIAL COURT
1. With respect to Burke: Pay 6k to Elser,
pay 1k to Cooper Company for unpaid
repairs
2. With respect to Elser: Purchase the
yacht (appealed by Elser to SC)
ISSUE
WON letter written on 3 April 1922 was a valid
contract of sale binding on Elser
RULING
1. No
a. A common man would use “I am
willing to buy, I intend to
purchase”
b. Elser was a prosperous
merchant and so his specific
words should be presumed to
have been chosen for specific
effect. Thus his statement that “I
am willing to entertain the
purchase” shows that he did not
intend to buy the yacht, but
merely ENTERTAINED the idea
c. Esler never wanted to buy the
yacht for himself, only sell it to
members of a yacht club
d. Elser only considered
purchasing the yacht when he
negotiated with Avery to obtain a
20k loan to replace the engine.
Since he had not yet acquired
the 20k to replace the engine, it
can be assumed that he was not
yet willing to purchase the yacht
e. 3 April 1922 letter was made by
stenographer who supports
Elser’s claim that Elser refused
to remove “entertained” even
when Burke asked to remove it
 CASE DIGEST CONTRACT PART 3 18

*Also reversed ruling on Burke paying for petitioner ARC still accepted it without any
repairs – it was Elser who initiated and ordered objections. Hence, it still deemed complied
repairs, and it was Elser’s word against Burke with.
in this situation, so follow logic: Whoever
asked for repairs, and got something in return
(use of yacht) liable to pay for repairs.

ARRA REALTY CORP. VS. GUARANTEE

DEVELOPMENT CORP.

FACTS:
Arra Realty Corporation (ARC) was the owner
of a parcel of land located at Makati City.
Through its president, Architect Carlos
Arguelles, ARC decided to construct a five-
storey building on its property and engaged
the services of Engr. Erlinda Peñaloza as the
project and structural engineer. ARC
and Peñaloza agreed that the former would
share the purchase price of one floor of the
building which the latter took possession on
the one-half portion of the second floor.
Unknown to her, ARC executed a mortgage
over the entire lot and building to China Bank
Corporation. When ARC failed to pay its loan
to the said Bank, the subject property was
foreclosed extrajudicially and sold at a public
auction by the said Bank. Peñaloza filed a
complaint for specific performance against
petitioners.

ISSUE:
Whether or not there has been a perfected
contract of sale?

HELD:
YES. The parties agreed on the price and the
terms of payment. The contract of sale was
perfected. It being consensual in nature,
perfected by mere consent, was manifested
the moment there was meeting of the minds as
to the offer and acceptance. The parties
entered into the contract of sale as vendor and
vendee. Perfection per se does not transfer
ownership but which occurs upon actual or
constructive delivery of the thing sold.

Moreover, Article 1205 provides that, if the

creditor accepted the debtor’s defaulted
payment without any protest, it is deemed
complied with. In the case at bar, Peñaloza
defaulted in the downpayment but the

MALBAROSA V COURT OF APPEALS
CALLEJO; April 30, 2003
NATURE
Petition for review on certiorari of the decision
of the CA.
FACTS
- The petitioner Salvador Malbarosa was the
president and general manager of Philtectic
Corporation and an officer of other
corporations belonging to the SEADC group of
companies. SEADC assigned to him a 1982
model Mitsubishi Gallant Super Saloon car
and was also issued membership certificates
in the Architectural Center, Inc.
- On January 8, 1990, Malabarosa tendered
his resignation from all his positions in the
SEADC group of companies and reiterating
his request for the payment of his incentive
compensation for 1989 which is approximately
P395,000.00 according to him.
- SEADC, through its President Louis Da
Costa, accepted his resignation and entitled
him to an incentive amounting to P251,057.67,
which was lower than Malbarosa's
expectation. It is to be satisfied by transferring
to him the car assigned to him, which
estimated fair market value is P220,000.00
and the membership share of SEADC
subsidiary, Tradestar International Inc. in the
Architectural Center, Inc. amounting to
P60,000.00.
- The respondent prepared the letter-offer
dated march 14, 1990 and required Malbarosa
to affix his conformity on the space provided
therefor and the date thereof on the right
bottom position of the letter.
- On March 16, 1990, Da Costa met with the
petitioner and handed to him the original copy
of the letter-offer for his consideration but he
refused to sign it, instead said that he will
review the offer first. More than two weeks
have passed and Da Costa never heard
feedback from Malbarosa. Thus he decided to
finally withdraw his offer on April 3, 1996.
However, Malbarosa transmitted the copy of
CASE DIGEST CONTRACT PART 3 19
the signed Letter-offer to respondent on April
7, 1996 and he alleged that he had already
accepted the offer of the respondent when he
affixed his conformity thereto on the space
provided therefor on March 28, 1990 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.
Procedure
- Due to petitioner's refusal to return the
vehicle after April 3, 1996, the respondent filed
a complaint for recovery of personal property
with replevin, with damages and atty's fee.
- RTC – issued a writ of replevin
- CA – affirmed RTC's decision
ISSUES
1. WON there was a valid acceptance on
Malbarosa's part of the March 14, 1990
letter-offer of respondent
2. WON there was an effective withdrawal by
the respondent of said Letter-offer
HELD
1. NO.
- Article 1318 of CC says that “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
In this case, there is no contract as Malbarosa
failed to meet the requirements of a valid
acceptance to wit:
(a) May be express or implied
(b) Must be absolute, unconditional and
without variance of any sort from the offer
© must be made known to the offeror
(d) Must be made in the manner prescribed by
the offeror
Reasoning Malabarosa communicated his
acceptance only after the knowledge of
revocation or withdrawal of his offer. He failed
 CASE DIGEST CONTRACT PART 3 20

to transmit his conformity while the offer was

subsisting. An acceptance which is not made
in the manner prescribed by the offeror is not
effective but constitutes a counter-offer which
the offeror may accept or reject. The
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. There was no contract
perfected between the petitioner and the
respondent corporation.

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. 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.

2. YES
- 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 Letter-offer.

Disposition Decision of the CA is AFFIRMED.