DKC Holdings v CA 329 SCRA 666

Facts:

The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela,
Metro Manila which was originally owned by private respondent Victor U. Bartolome's deceased
mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of
Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and,
as such, was seen by the latter as a potential warehouse site.

On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion
Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land,
which option must be exercised within a period of two years counted from the signing of the
Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation
of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor
Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case
petitioner chose to lease the property, it may take actual possession of the premises. In such an
event, the lease shall be for a period of six years, renewable for another six years, and the monthly
rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of
renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her
death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor
Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments.

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the
properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds
cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249
in the name of Victor Bartolome.

On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its
option to lease the property, tendering the amount of P15,000.00 as rent for the month of March.
Again, Victor refused to accept the tendered rental fee and to surrender possession of the property
to petitioner.

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation,
Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for
March as well as P6,000.00 reservation fees for the months of February and March.

Petitioner also tried to register and annotate the Contract on the title of Victor to the property.
Although respondent Register of Deeds accepted the required fees, he nevertheless refused to
register or annotate the same or even enter it in the day book or primary register.1âwphi1.nêt

Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against
Victor and the Register of Deeds,3 docketed as Civil Case No. 3337-V-90 which was raffled off to
Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery
of possession of the subject land in accordance with the Contract terms; the surrender of title for
registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual
damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as
attorney's fees.

1
Issue:

The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy
entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or
whether it binds her sole heir, Victor, even after her demise.

Ruling:

Both the lower court and the Court of Appeals held that the said contract was terminated upon the
death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

Art. 1311 of the Civil Code provides, as follows —

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.

xxx xxx xxx

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-
in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law.

In the case at bar, there is neither contractual stipulation nor legal provision making the rights and
obligations under the contract intransmissible. More importantly, the nature of the rights and
obligations therein are, by their nature, transmissible.

The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as

follows:

Among contracts which are intransmissible are those which are purely personal, either by provision
of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising
therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated
that contracts for the payment of money debts are not transmitted to the heirs of a party, but
constitute a charge against his estate. Thus, where the client in a contract for professional services of
a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional
services under the contract to the probate court, substituted the minors as parties for his client, it
was held that the contract could not be enforced against the minors; the lawyer was limited to a
recovery on the basis of quantum meruit.9

In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal
qualification of one or both parties, the agreement is of a personal nature, and terminates on the
death of the party who is required to render such service." 10

It has also been held that a good measure for determining whether a contract terminates upon the
death of one of the parties is whether it is of such a character that it may be performed by the
promissor's personal representative. Contracts to perform personal acts which cannot be as well
performed by others are discharged by the death of the promissor. Conversely, where the service or
act is of such a character that it may as well be performed by another, or where the contract, by its

2
terms, shows that performance by others was contemplated, death does not terminate the contract
or excuse nonperformance. 11

In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner
upon the exercise by the latter of its option to lease the same may very well be performed by her
heir Victor.

As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." 12 In 1952, it
was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the
reconveyance had not been made, the heirs can be compelled to execute the proper deed for
reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence
of a transaction entered into by their predecessor-in-interest because they have inherited the
property subject to the liability affecting their common ancestor. 13

It is futile for Victor to insist that he is not a party to the contract because of the clear provision of
Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what rights his mother had and what is
valid and binding against her is also valid and binding as against him.

In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The
death of a party does not excuse nonperformance of a contract which involves a property right, and
the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party when the other party has a property
interest in the subject matter of the contract. 16

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the
subject Contract of Lease with Option to Buy.

3
Tanay Recreation v Fausto GR No 140182

Facts:

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square
meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,1 under a
Contract of Lease executed on August 1, 1971. On this property stands the Tanay Coliseum Cockpit
operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within
sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the
property, petitioner shall have the "priority right" to purchase the same.2

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the
lease.3 However, it was Fausto’s daughter, respondent Anunciacion F. Pacunayen, who replied, asking
that petitioner remove the improvements built thereon, as she is now the absolute owner of the
property.4 It appears that Fausto had earlier sold the property to Pacunayen on August 8, 1990, for
the sum of ₱10,000.00 under a "Kasulatan ng Bilihan Patuluyan ng Lupa,"5 and title has already been
transferred in her name under Transfer Certificate of Title (TCT) No. M-35468.6

Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an
Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and
Injunction, docketed as Civil Case No. 372-M.7

In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed
of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease.
According to respondent, when they met to discuss the matter, petitioner did not demand for the
exercise of its option to purchase the property, and it even asked for grace period to vacate the
premises.

Issue:

The principal bone of contention in this case refers to petitioner’s priority right to purchase, also
referred to as the right of first refusal.

Ruling:

Petitioner’s right of first refusal in this case is expressly provided for in the notarized "Contract of
Lease" dated August 1, 1971, between Fausto and petitioner, to wit:

7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right
to purchase the same;17

When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee
not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain
price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be
in his favor.18 Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease
and is inseparable from the whole contract. The consideration for the lease includes the
consideration for the right of first refusal19 and is built into the reciprocal obligations of the parties.

4
It was erroneous for the CA to rule that the right of first refusal does not apply when the property is
sold to Fausto’s relative.20 When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such, there can be, between the parties and
their successors in interest, no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and agreement of the parties.21 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 Fausto’s kin. Thus, under the terms of petitioner’s right of first
refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives,
at any price until after she has made an offer to sell to petitioner at a certain price and said offer was
rejected by petitioner. Pursuant to their contract, it was essential that Fausto should have first
offered the property to petitioner before she sold it to respondent. It was only after petitioner failed
to exercise its right of first priority could Fausto then lawfully sell the property to respondent.

The rule is that a sale made in violation of a right of first refusal is valid. However, it may be
rescinded, or, as in this case, may be the subject of an action for specific performance.

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.24

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 Fausto’s heir.25

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 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:

ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.

A lease contract is not essentially personal in character.26 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.27

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

5
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.

In DKC Holdings Corporation vs. Court of Appeals,28 the Court held that the Contract of Lease with
Option to Buy entered into by the late Encarnacion Bartolome with DKC Holdings Corporation was
binding upon her sole heir, Victor, even after her demise and it subsists even after her death. The
Court ruled that:

. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased
mother. He only succeeds to what rights his mother had and what is valid and binding against her
is also valid and binding as against him. This is clear from Parañaque Kings Enterprises vs. Court of
Appeals, where this Court rejected a similar defense-

With respect to the contention of respondent Raymundo that he is not privy to the lease contract,
not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions,
but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the
land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of rental payments. Furthermore, the
complaint, as well as the petition, prayed for the annulment of the sale of the properties to him.
Both pleadings also alleged collusion between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the
rights of respondent Raymundo as the buyer of the property over which petitioner would like to
assert its right of first option to buy.29 (Emphasis supplied)

Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after
Fausto’s death and her heirs merely stepped into her shoes.30 Respondent, as an heir of Fausto, is
therefore bound to fulfill all its terms and conditions.

There is no personal act required from Fausto such that respondent cannot perform it. Fausto’s
obligation to deliver possession of the property to petitioner upon the exercise by the latter of its
right of first refusal may be performed by respondent and the other heirs, if any. 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.31

The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is
now barred from exercising its right of first refusal.

6
Gilchrist v Cuddy 29 Phil 542

Facts:

Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d of
May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a certain cinematograph film
called "Zigomar" in compliance with an alleged contract which had been entered into between these
two parties, and at the time an ex parte preliminary injunction was issued restraining the appellants
from receiving and exhibiting in their theater the Zigomar until further orders of the court. On the
26th of that month the appellants appeared and moved the court to dissolve the preliminary
injunction. When the case was called for trial on August 6, the appellee moved for the dismissal of
the complaint "for the reason that there is no further necessity for the maintenance of the
injunction." The motion was granted without objection as to Cuddy and denied as to the appellants
in order to give them an opportunity to prove that the injunction were wrongfully issued and the
amount of damages suffered by reason thereof.

It appears in this case that Cuddy was the owner of the film Zigomar and that on the 24th of April he
rented it to C. S. Gilchrist for a week for P125, and it was to be delivered on the 26th of May, the
week beginning that day. A few days prior to this Cuddy sent the money back to Gilchrist, which he
had forwarded to him in Manila, saying that he had made other arrangements with his film. The
other arrangements was the rental to these defendants Espejo and his partner for P350 for the week
and the injunction was asked by Gilchrist against these parties from showing it for the week
beginning the 26th of May.

It appears from the testimony in this case, conclusively, that Cuddy willfully violated his contract, he
being the owner of the picture, with Gilchrist because the defendants had offered him more for the
same period. Mr. Espejo at the trial on the permanent injunction on the 26th of May admitted that
he knew that Cuddy was the owner of the film. He was trying to get it through his agents Pathe
Brothers in Manila. He is the agent of the same concern in Iloilo. There is in evidence in this case on
the trial today as well as on the 26th of May, letters showing that the Pathe Brothers in Manila
advised this man on two different occasions not to contend for this film Zigomar because the rental
price was prohibitive and assured him also that he could not get the film for about six weeks. The last
of these letters was written on the 26th of April, which showed conclusively that he knew they had
to get this film from Cuddy and from this letter that the agent in Manila could not get it, but he made
Cuddy an offer himself and Cuddy accepted it because he was paying about three times as much as
he had contracted with Gilchrist for. Therefore, in the opinion of this court, the defendants failed
signally to show the injunction against the defendant was wrongfully procured.

7
Ruling:

From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the owner of
the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance
with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the
latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913;
and that Cuddy willfully violate his contract in order that he might accept the appellant's offer of
P350 for the film for the same period. Did the appellants know that they were inducing Cuddy to
violate his contract with a third party when they induced him to accept the P350? Espejo admitted
that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila
dated April 26, assuring him that he could not get the film for about six weeks. The arrangement
between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May
were perfected after April 26, so that the six weeks would include and extend beyond May 26. The
appellants must necessarily have known at the time they made their offer to Cuddy that the latter
had booked or contracted the film for six weeks from April 26. Therefore, the inevitable conclusion is
that the appellants knowingly induced Cuddy to violate his contract with another person. But there is
no specific finding that the appellants knew the identity of the other party. So we must assume that
they did not know that Gilchrist was the person who had contracted for the film.

The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must be
fully recognized and admitted by all. That Cuddy was liable in an action for damages for the breach of
that contract, there can be no doubt. Were the appellants likewise liable for interfering with the
contract between Gilchrist and Cuddy, they not knowing at the time the identity of one of the
contracting parties? The appellants claim that they had a right to do what they did. The ground upon
which the appellants base this contention is, that there was no valid and binding contract between
Cuddy and Gilchrist and that, therefore, they had a right to compete with Gilchrist for the lease of
the film, the right to compete being a justification for their acts. If there had been no contract
between Cuddy and Gilchrist this defense would be tenable, but the mere right to compete could not
justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights.

Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy the
fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be free from
malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a result
of competition, or the exercise of like rights by others, it is damnum absque injuria, unless some
superior right by contract or otherwise is interfered with."

In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I think
the plaintiff has a cause of action against the defendants, unless the court is satisfied that, when they
interfered with the contractual rights of plaintiff, the defendants had a sufficient justification for their
interference; . . . for it is not a justification that `they acted bona fide in the best interests of the
society of masons,' i. e., in their own interests. Nor is it enough that `they were not actuated by
improper motives.' I think their sufficient justification for interference with plaintiff's right must be an
equal or superior right in themselves, and that no one can legally excuse himself to a man, of whose
contract he has procured the breach, on the ground that he acted on a wrong understanding of his
own rights, or without malice, or bona fide, or in the best interests of himself, or even that he acted
as an altruist, seeking only good of another and careless of his own advantage." (Quoted with
approval in Beekman vs. Marsters, 195 Mass., 205.)

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

8
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.

The liability of the appellants arises from unlawful acts and not from contractual obligations, as they
were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So that if the
action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of
the Civil Code. Article 1902 of that code provides that a person who, by act or omission, causes
damages to another when there is fault or negligence, shall be obliged to repair the damage do
done. There is nothing in this article which requires as a condition precedent to the liability of a tort-
feasor that he must know the identity of a person to whom he causes damages. In fact, the chapter
wherein this article is found clearly shows that no such knowledge is required in order that the
injured party may recover for the damage suffered.

But the fact that the appellants' interference with the Gilchrist contract was actionable did not of
itself entitle Gilchrist to sue out an injunction against them. The allowance of this remedy must be
justified under section 164 of the Code of Civil Procedure, which specifies the circumstance under
which an injunction may issue. Upon the general doctrine of injunction we said in Devesa vs. Arbes
(13 Phil. Rep., 273):

9
MCIAA v Gavina GR No 173140 January 11 2016

Facts:

On October 14, 1957, Julian Chizon (Julian) executed a Deed of I Extrajudicial Settlement and Sale4
(De~d) covering Lot No. 4539 (subject lot) situated in Ibo, Municipality of Opon (now Lapu-Lapu City)
in favor of the Civil Aeronautics Administration (CAA), the predecessor-in-interest of petitioner
Manila Cebu International ~irport Authority (MCIAA). Since then until the present, MCIAA n~mained
in material, continuous, uninterrupted and adverse possession 9f the subject lot through the CAA,
later renamed the Bureau of Air Tran:sportation (BAT), and is presently known as the Air
Transportation Of ce (ATO). The subject lot was transferred and conveyed to MCIAA by virtue of
Republic Act No. 6958.

In 1980, the respondents caused the judicial reconstitution of the original certificate of title covering
the subject lot (issued by virtue of Decree No. 531167). Consequently, Original Certificate of Title
(OCT) No. R0-2431 of the Register of Deeds of ¢ebu was reconstituted for Lot No. 4539 in the names
of the respondent$' predecessors-in-interest, namely, Gavina ljordan, and Julian, Francisca,
Damasina, Marciana, Pastor, Angela, Mansueto, Bonifacia, Basilio, Moises and Florencio, all
surnamed Cuison.5 The respondents' ownership of the subject lot was evidenced by OCT No. R0-
2431. They asserted that they had not sold their shares in the subject lot, and had not authorized
Julian to sell their shares to MCIAA's predecessorin-interest.

The failure of the respondents to surrender the owner's copy of OCT No. R0-2431 prompted MCIAA
to sue them for the cancellation of title in the RTC,7 alleging in its complaint that the certificate of
title conferred no right in favor of the respondents because the lot had already been sold to the
Government in 1957; that the subject lot had then been declared for taxation purposes under Tax
Declaration No. 00387 in the name of the BAT; and that by virtue of the Deed, the respondents came
under the legal obligation to surrender the certificate of title for cancellation to enable the issuance
of a new one in its name.

Ruling:

Secondly, the CA and the RTC concluded that the Deed was void as far as the respondents' shares in
the subject lot were concerned, but valid as to Julian's share. Their conclusion was based on the
absence of the authorityfrom his co-heirs in favor of Julian to convey their shares in the subject lot.
We have no reason to overturn the affirmance of the CA on the issue of the respondents' co-
ownership with Julian. Hence, the conveyance by Julian of the entire property pursuant to the Deed
did not bind the respondents for lack of their consent and authority in his favor. As such, the Deed
had no legal effect as to their shares in the property. Article 1317 of the Civil Code provides that no
person could contract in the name of another without being authorized by the latter, or unless he
had by law a right to represent him; the contract entered into in the name of another by one who
has no authority or legal representation, or who has acted beyond his powers, is 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. But the conveyance by Julian through the Deed
had full force and effect with respect to his share of 1/22 of the entire property consisting of 546
square meters by virtue of its being a voluntary disposition of property on his part.

10
MCIAA's assertion of estoppel or ratification to bar the respondents' contrary claim of ownership of
their shares in the subject lot is bereft of substance. The doctrine of estoppel applied only to those
who were parties to the contract and their privies or successors-in-interest. 25 Moreover, the
respondents could not be held to ratify the contract that was declared to be null and void with
respect to their share, for there was nothing for them to ratify. Verily, the Deed, being null and void,
had no adverse effect on the rights of the respondents in the subject lot.

11
Spouses Fernando v Northwest Airlines GR No 212038 February 8 2017

Facts:

The spouses Jesus and Elizabeth S. Fernando (Fernandos) are frequent flyers of Northwest Airlines,
Inc. and are holders of Elite Platinum World Perks Card, the highest category given to frequent flyers
of the carrier.4 They are known in the musical instruments and sports equipments industry in the
Philippines being the owners of JB Music and JB Sports with outlets all over the country. They
likewise own the five (5) star Hotel Elizabeth in Baguio City and Cebu City, and the chain of Fersal
Hotels and Apartelles in the country.5

The Fernandos initiated the filing of the instant case which arose from two (2) separate
incidents: first, when Jesus Fernando arrived at Los Angeles (LA) Airport on December 20,
2001; second, when the Fernandos were to depart from the LA Airport on January 29, 2002. The
factual antecedents are as follows:

a.) The arrival at Los Angeles Airport on December 20, 2001

Sometime on December 20, 2001, Jesus Fernando arrived at the LA Airport via Northwest Airlines
Flight No. NW02 to join his family who flew earlier to the said place for a reunion for the Christmas
holidays.6

When Jesus Fernando presented his documents at the immigration counter, he was asked by the
Immigration Officer to have his return ticket verified and validated since the date reflected thereon is
August 2001. So he approached a Northwest personnel who was later identified as Linda
Puntawongdaycha, but the latter merely glanced at his ticket without checking its status with the
computer and peremptorily said that the ticket has been used and could not be considered as valid.
He then explained to the personnel that he was about to use the said ticket on August 20 or 21, 2001
on his way back to Manila from LA but he could not book any seat because of some ticket restrictions
so he, instead, purchased new business class ticket on the said date.7 Hence, the ticket remains
unused and perfectly valid.

To avoid further arguments, Jesus Fernando gave the personnel the number of his Elite Platinum
World Perks Card for the latter to access the ticket control record with the airline's computer and for
her to see that the ticket is still valid. But Linda Puntawongdaycha refused to check the validity of the
ticket in the computer but, instead, looked at Jesus Fernando with contempt, then informed the
Immigration Officer that the ticket is not valid because it had been used.8

The Immigration Officer brought Jesus Fernando to the interrogation room of the Immigration and
Naturalization Services (INS) where he was asked humiliating questions for more than two (2) hours.
When he was finally cleared by the Immigration Officer, he was granted only a twelve (12)-day stay in
the United States (US), instead of the usual six (6) months.9

When Jesus Fernando was finally able to get out of the airport, to the relief of his family, Elizabeth
Fernando proceeded to a Northwest Ticket counter to verify the status of the ticket. The personnel
manning the counter courteously assisted her and confirmed that the ticket remained unused and
perfectly valid. To avoid any future problems that may be encountered on the validity of the ticket, a
new ticket was issued to Jesus Fernando.10

12
Since Jesus Fernando was granted only a twelve (12)-day stay in the US, his scheduled plans with his
family as well as his business commitments were disrupted. He was supposed to stay with his family
for the entire duration of the Christmas season because his son and daughter were then studying at
Pepperton University in California. But he was forced to fly back to Manila before the twelve (12)-day
stay expired and flew back to the US on January 15, 2002. The Fernandos were, likewise, scheduled
to attend the Musical Instrument Trade Show in LA on January 1 7, 2002 and the Sports Equipment
Trade Show in Las Vegas on January 21 to 23, 2002 which were both previously scheduled. Hence,
Jesus Fernando had to spend additional expenses for plane fares and other related expenses, and
missed the chance to be with his family for the whole duration of the Christmas holidays.

b.) The departure from the Los Angeles Airport on January 29, 2002.

On January 29, 2002, the Fernandos were on their way back to the Philippines. They have confirmed
bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan and NW 029 for Manila. They
checked in with their luggage at the LA Airport and were given their respective boarding passes for
business class seats and claim stubs for six (6) pieces of luggage. With boarding passes, tickets and
other proper travel documents, they were allowed entry to the departure area and joined their
business associates from Japan and the Philippines who attended the Musical Instrument Trade
Show in LA on January 17, 2002 and the Sports Equipment Trade Show in Las Vegas on January 21 to
23, 2002. When it was announced that the plane was ready for boarding, the Fernandos joined the
long queue of business class passengers along with their business associates.12

When the Fernandos reached the gate area where boarding passes need to be presented, Northwest
supervisor Linda Tang stopped them and demanded for the presentation of their paper
tickets (coupon type). They failed to present the same since, according to them, Northwest issued
electronic tickets (attached to the boarding passes) which they showed to the supervisor. 13 In the
presence of the other passengers, Linda Tang rudely pulled them out of the queue. Elizabeth
Fernando explained to Linda Tang that the matter could be sorted out by simply verifying their
electronic tickets in her computer and all she had to do was click and punch in their Elite Platinum
World Perks Card number. But Linda Tang arrogantly told them that if they wanted to board the
plane, they should produce their credit cards and pay for their new tickets, otherwise Northwest
would order their luggage off-loaded from the plane. Exasperated and pressed for time, the
Fernandos rushed to the Northwest Airline Ticket counter to clarify the matter. They were assisted by
Northwest personnel Jeanne Meyer who retrieved their control number from her computer and was
able to ascertain that the Fernandos' electronic tickets were valid and they were confirmed
passengers on both NW Flight No. 001 for Narita Japan and NW 029 for Manila on that day. To
ensure that the Fernandos would no longer encounter any problem with Linda Tang, Jeanne Meyer
printed coupon tickets for them who were then advised to rush back to the boarding gates since the
plane was about to depart. But when the Fernandos reached the boarding gate, the plane had
already departed. They were able to depart, instead, the day after, or on January 30, 2002, and
arrived in the Philippines on January 31,2002.

13
Ruling:

We find merit in the petition of the Spouses Jesus and Elizabeth Fernando. The Fernandos' cause of
action against Northwest stemmed from a breach of contract of carriage. A contract is a meeting of
minds between two persons whereby one agrees to give something or render some service to
another for a consideration. There is no contract unless the following requisites concur: (1) consent
of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause
of the obligation which is established. 30

A contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or goods from one place to another for a fixed price. Under
Article 1732 of the Civil Code, this "persons, corporations, firms, or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public" is called a common carrier.31 Undoubtedly, a
contract of carriage existed between Northwest and the Fernandos. They voluntarily and freely gave
their consent to an agreement whose object was the transportation of the Fernandos from LA to
Manila, and whose cause or consideration was the fare paid by the Fernandos to Northwest.

In an action based on a breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that he has to prove is the existence of the
contract and the fact of its non-performance by the carrier.37 As the aggrieved party, the Fernandos
only had to prove the existence of the contract and the fact of its non-performance by Northwest, as
carrier, in order to be awarded compensatory and actual damages.38

Therefore, having proven the existence of a contract of carriage between Northwest and the
Fernandos, and the fact of non-performance by Northwest of its obligation as a common carrier, it is
clear that Northwest breached its contract of carriage with the Fernandos. Thus, Northwest opened
itself to claims for compensatory, actual, moral and exemplary damages, attorney's fees and costs of
suit.39

Moreover, Article 1733 of the New Civil Code provides that common carriers, from the nature of
their business and for reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by them, according to all
the circumstances of each case. Also, Article 1755 of the same Code states that a common carrier is
bound to carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances.

We, thus, sustain the findings of the CA and the RTC that Northwest committed a breach of contract
"in failing to provide the spouses with the proper assistance to avoid any inconvenience" and that
the actuations of Northwest in both subject incidents "fall short of the utmost diligence of a very
cautious person expected of it". Both ruled that considering that the Fernandos are not just ordinary
passengers but, in fact, frequent flyers of Northwest, the latter should have been more courteous
and accommodating to their needs so that the delay and inconveniences they suffered could have
been avoided. Northwest was remiss in its duty to provide the proper and adequate assistance to
them.

Nonetheless, We are not in accord with the common finding of the CA and the RTC when both ruled
out bad faith on the part of Northwest. While We agree that the discrepancy between the date of
actual travel and the date appearing on the tickets of the Fernandos called for some verification,
however, the Northwest personnel failed to exercise the utmost diligence in assisting the Fernandos.
The actuations of Northwest personnel in both subject incidents are constitutive of bad faith.

14
On the first incident, Jesus Fernando even gave the Northwest personnel the number of his Elite
Platinum World Perks Card for the latter to access the ticket control record with the airline's
computer for her to see that the ticket is still valid. But Linda Puntawongdaycha refused to check the
validity of the ticket in the computer. As a result, the Immigration Officer brought Jesus Fernando to
the interrogation room of the INS where he was interrogated for more than two (2) hours. When he
was finally cleared by the Immigration Officer, he was granted only a twelve (12)-day stay in the
United States (US), instead of the usual six (6) months.40

As in fact, the RTC awarded actual or compensatory damages because of the testimony of Jesus
Fernando that he had to go back to Manila and then return again to LA, USA, two (2) days after
requiring him to purchase another round trip ticket from Northwest in the amount of $2,000.00
which was not disputed by Northwest.41 In ignoring Jesus Fernando's pleas to check the validity of
the tickets in the computer, the Northwest personnel exhibited an indifferent attitude without due
regard for the inconvenience and anxiety Jesus Fernando might have experienced.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected
against personal misconduct, injurious language, indignities and abuses from such employees. So it
is, that any rule or discourteous conduct on the part of employees towards a passenger gives the
latter an action for damages against the carrier.42

In requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that
of the highest possible degree of diligence, from common carriers and in creating a presumption of
negligence against them, the law seeks to compel them to control their employees, to tame their
reckless instincts and to force them to take adequate care of human beings and their property.43

Notably, after the incident, the Fernandos proceeded to a Northwest Ticket counter to verify the
status of the ticket and they were assured that the ticked remained unused and perfectly valid. And,
to avoid any future problems that may be encountered on the validity of the ticket, a new ticket was
issued to Jesus Fernando. The failure to promptly verify the validity of the ticket connotes bad faith
on the part of Northwest.

Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong. It means breach of a known duty through
some motive, interest or ill will that partakes of the nature of fraud. A finding of bad faith entitles the
offended party to moral damages.44

As to the second incident, there was likewise fraud or bad faith on the part of Northwest when it did
not allow the Fernandos to board their flight for Manila on January 29, 2002, in spite of confirmed
tickets. We need to stress that they have confirmed bookings on Northwest Airlines NW Flight No.
001 for Narita, Japan and NW 029 for Manila. They checked in with their luggage at LA Airport and
were given their respective boarding passes for business class seats and claim stubs for six (6) pieces
of luggage. With boarding passes and electronic tickets, apparently, they were allowed entry to the
departure area; and, they eventually joined the long queue of business class passengers along with
their business associates.

15
However, in the presence of the other passengers, Northwest personnel Linda Tang pulled the
Fernandos out of the queue and asked for paper tickets (coupon type). Elizabeth Fernando explained
to Linda Tang that the matter could be sorted out by simply verifying their electronic tickets in her
computer and all she had to do was click and punch in their Elite Platinum World Perks Card number.
Again, the Northwest personnel refused to do so; she, instead, told them to pay for new tickets so
they could board the plane. Hence, the Fernandos rushed to the Northwest Airline Ticket counter to
clarify the matter. They were assisted by Northwest personnel Jeanne Meyer who retrieved their
control number from her computer and was able to ascertain that the Fernandos' electronic tickets
were valid, and they were confirmed passengers on both NW Flight No. 001 for Narita Japan and NW
029 for Manila on that day.

16
Laudico v Arias 43 Phil 270

Facts:

On February 5, 1919, the defendant, Vicente Arias, who, with his codefendants, owned the building
Nos. 205 to 221 on Carriedo Street, on his behalf and that of his coowners, wrote a letter to the
plaintiff, Mamerto Laudico, giving him an option to lease the building to a third person, and
transmitting to him for that purpose a tentative contract in writing containing the conditions upon
which the proposed lease should be made. Later Mr. Laudico presented his coplaintiff, Mr. Fred. M.
Harden, as the party desiring it lease the building. On one hand, other conditions were added to
those originally contained in the tentative contract, and, on the other, counter-propositions were
made and explanations requested on certain points in order to make them clear. These negotiations
were carried on by correspondence and verbally at interviews held with Mr. Vicente Arias, no
definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a letter to Mr.
Arias on March 6, 1919, and advising him that all his propositions, as amended and supplemented,
were accepted. It is admitted that this letter was received by Mr. Arias by special delivery at 2:53 p.
m. of that day. On that same day at 11:25 in the morning, Mr. Arias had, in turn, written a letter to
the plaintiff, Mr. Laudico, withdrawing the offer to lease the building.

The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the
contract of lease of the building in question. It thus results that 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.

Ruling:

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 received 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.

Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily
notice of the revocation of an offer must be given to avoid an acceptance which may convert it into a
binding contract, and that no such notice can be deemed to have been given to the person to whom
the offer was made unless the revocation was in fact brought home to his knowledge.

This, however, has no application in the instant case, because when Arias received the letter of
acceptance, his letter of revocation had already been received. The latter was sent through a
messenger at 11:25 in the morning directly to the office of Laudico and should have been received

17
immediately on that same morning, or least, before Arias received the letter of acceptance. On this
point we do not give any credence to the testimony of Laudico that he received this letter of
revocation at 3:30 in the afternoon of that day. Laudico is interested in destroying the effect of this
revocation so that the acceptance may be valid, which is the principal ground of his compliant.

But even supposing Laudico’s testimony to be true, still the doctrine invoked has no application here.
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 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 Q. Mucius Scaevola says apropos: "To our mind, the
power to revoke is implied in the criterion that no contract exists until the acceptance is known. As
the tie or bond springs form the meeting or concurrence of the minds, since up to that moment
there exists only a unilateral act, it is evident that he who makes it must have the power to revoke it
by withdrawing his proposition, although with the obligation to pay such damages as may have been
sustained by the person or persons to whom the offer was made and by whom it was accepted, if he
in turn failed to give them notice of the withdrawal of the offer. This view is confirmed by the
provision of article 1257, paragraph 2 concerning the case where a stipulation is made in favor of a
third person, which provision, which provision authorizes the contracting parties to revoke the
stipulation before the notice of its acceptance. That case is quite similar to that under comment, as
said stipulation in favor of a third person (who, for the very reason of being a third person, is not a
contracting party) is tantamount to an offer made by the makers of the contract which may or may
not be accepted by him, and which does not have any effect until the obligator is notified, and may,
before it is accepted, be revoked by those who have made it; therefore, the case being similar, the
same rule applies."cralaw virtua1aw library

Under the second theory, the doctrine invoked by the plaintiffs is sound, because if the sending of
the letter of acceptance in itself really perfects the contract, the revocation the acceptor. But this
consideration has no place in the first theory under which the forwarding of the letter of acceptance,
in itself, does not have any effect until the acceptance is known by the person who has made the
offer.

18
Villanueva v CA 244 SCRA 395

Facts:

The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva,
acquired by the latter during her husband’s sojourn in the United States since 1968. Sometime in
1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB
branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to
surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in
connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering
the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela
Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose
Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2)
lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds
that the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in
turn were again canceled and new titles issued in favor of Andres Sebastian, until finally new titles
were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots
were about to be sold at auction. The PVB told her that she can redeem the lots for the price of
P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of
liquidation proceedings against the PVB on August of 1985.

Her offer not having been accepted,[6] Miguela Villanueva increased her bid to P70,000.00. It was
only at this time that she disclosed to the bank her private transactions with Jose Viudez.[7] After
this and her subsequent offers were rejected,[8] Miguela sent her sealed bid of P110,417.00
pursuant to the written advice of the vice president of the PVB.[9] The PVB was placed under
receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and later,
under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for
liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and
assigned to Branch 39 of the said court. chanroblespublishingcompany On 26 May 1987, Ong
tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated lots.
[10] An employee of the PVB received the amount conditioned upon approval by the Central Bank
liquidator.[11] Ong’s demand for a deed of conveyance having gone unheeded, he filed on 23
October 1987 with the RTC of Manila an action for specific performance against the Central Bank.
[12] It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under
liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the
liquidation court.

19
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among
others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor
of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in
collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to
purchase the property from the bank; and that she reported the matter to the PC/INP Criminal
Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended
the filing of a complaint for estafa through falsification of public documents against Jose Viudez and
Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be
conveyed back to her.[16] Later, in view of the death of her husband, she amended her claim to
include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva.

Ruling:

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.”

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that: The
contract is not perfected except by the concurrence of two wills which exist and continue until the
moment that they occur. The contract is not yet perfected at any time before acceptance is
conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents
the contractual tie from being formed.

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets
of the bank pass beyond its control into the possession and control of the receiver whose duty it is to
administer to assets for the benefit of the creditors of the bank.[31] Thus, the appointment of a
receiver operates to suspend the authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way.

20
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 thus:

21
Adelfa v CA 240 SCRA 565

Facts:

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered
co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of
Title (TCT) No. 309773,2 situated in Barrio Culasi, Las Piñas, Metro Manila.

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel
of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa
Bilihan ng Lupa."3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement"4 was executed by
the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters
was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein
private respondents.

3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from
private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase"5 was
executed between petitioner and private respondents, under the following terms and conditions:

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title
was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession
of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.

4. Before petitioner could make payment, it received summons6 on November 29, 1989, together
with a copy of a complaint filed by the nephews and nieces of private respondents against the latter,
Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as
Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and
recovery of ownership of the property covered by TCT No. 309773.7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents
that it would hold payment of the full purchase price and suggested that private respondents settle
the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is
a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m."8 Another letter
of the same tenor and of even date was sent by petitioner to Jose and Dominador
Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the
suspension of payment of the purchase price to "lack of word of honor."

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract
with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No.
1437-4 and entry No. 1438-4, respectively.

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In
turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time
reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.

22
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus,
on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive
option to purchase as Entry No. 4442-4.

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in
favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid
to private respondents on said date, with the balance to be paid upon the transfer of title to the
specified one-half portion.

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of
the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private
respondents.

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender
the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the option contract on
TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.

12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a
rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in
favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not
involve the western portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion thereof which was the subject of the sale between petitioner
and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the
exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to private respondents, with costs.

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale.

23
Ruling:

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as
a contract to sell, rather than a contract of sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until
and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to convey
title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is
neither a stipulation in the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period. 15

There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no stipulation
anent reversion or reconveyance of the property to herein private respondents in the event that
petitioner does not comply with its obligation. With the absence of such a stipulation, although there
is a provision on the remedies available to the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to the petitioner to completion of payment of
the purchase price.

In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had
fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly
made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding
and enforceable between the parties. It should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is considered a contract to sell.

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is
bolstered by the fact that the deed of absolute sale would have been issued only upon the payment
of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."

Secondly, it has not been shown there was delivery of the property, actual or constructive, made to
herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take
actual, physical possession of the property at any given time. It is true that after the reconstitution of
private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law,
such possession by the vendee is to be understood as a delivery.18 However, private respondents
explained that there was really no intention on their part to deliver the title to herein petitioner with
the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title
only because he was their counsel in the petition for reconstitution. We have no reason not to

24
believe this explanation of private respondents, aside from the fact that such contention was never
refuted or contradicted by petitioner.

2. Irrefragably, the controverted document should legally be considered as a perfected contract to

sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court
of Appeals which, while awarding the correct relief to private respondents, categorized the
instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter
into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An
option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property
but a sale of property but a sale of the right to purchase. 23 It is simply a contract by which the owner
of property agrees with another person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does not then agree to sell it; but he does
sell something, that it is, the right or privilege to buy at the election or option of the other party. 24 Its
distinguishing characteristic is that it imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract,
and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject
matter, but is merely a contract by which the owner of property gives the optionee the right or
privilege of accepting the offer and buying the property on certain terms. 25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 28

The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It
states the terms and conditions on which the owner is willing to sell the land, if the holder elects to
accept them within the time limited. If the holder does so elect, he must give notice to the other
party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is
not made within the time fixed, the owner is no longer bound by his offer, and the option is at an
end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of
the contracting parties meet in the terms of the agreement. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by the
parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a formal acceptance is so required,

25
although the acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to buy their property
under the terms of their contract. At the time petitioner made its offer, private respondents
suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a
matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents
in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot.
Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down
payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30,
1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called
exclusive option to purchase was prepared by petitioner and was subsequently signed by private
respondents, thereby creating a perfected contract to sell between them.

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the
acceptance thereof was absolute and without any condition or qualification. The agreement as to the
object, the price of the property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize and perfect the
transaction. The parties even went beyond the basic requirements of the law by stipulating that "all
expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds
are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.

We do not subscribe to private respondents' submission, which was upheld by both the trial court
and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced
to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected contract between the parties
at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only
when it is accepted by the other. In the case of private respondents, they actually refused to concur
in said offer of petitioner, by reason of which the original terms of the contract continued to be
enforceable.

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's
sole purpose was to settle the civil case in order that it could already comply with its obligation. In
fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it
was being prevented from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original contract.

More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase
price within the agreed period was attributed by private respondents to "lack of word of honor" on
the part of the former. The reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation
from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was

26
supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property.

The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that
is, the payment of the purchase price. The contract did not simply give petitioner the discretion to
pay for the property. 32 It will be noted that there is nothing in the said contract to show that
petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed
period was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by private
respondents to prove otherwise.

The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is
whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation
of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.

This is not a case where no right is as yet created nor an obligation declared, as where something
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only
an "option" when no obligation rests on the party to make any payment except such as may be
agreed on between the parties as consideration to support the option until he has made up his mind
within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement
to sell real estate for payments to be made within specified time and providing forfeiture of money
paid upon failure to make payment, where the purchaser does not agree to purchase, to make
payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As
hereinbefore discussed, this is not the situation obtaining in the case at bar.

While there is jurisprudence to the effect that a contract which provides that the initial payment shall
be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we
are not inclined to conform with the findings of respondent court and the court a quo that the
contract executed between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and were not merely
quoting an agreed value for the property. The term "balance," connotes a remainder or something
remaining from the original total sum already agreed upon.

In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. 38 It constitutes an advance payment and must,
therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to
bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is
part of the purchase price, while option money 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. 39

27
The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called "option money" by the parties. In addition, private
respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell.

28
Serra v CA 229 SCRA 61

Facts:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the price. (Article 1479,
New Civil Code) The first is the mutual promise and each has the right to demand from the other the
fulfillment of the obligation. While the second is merely an offer of one to another, which if
accepted, would create an obligation to the offeror to make good his promise, provided the
acceptance is supported by a consideration distinct from the price.

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate,
Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate,
negotiated with petitioner for the purchase of the then unregistered property. On May 20, 1975, a
contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion of
which reads:

Pursuant to said contract, a building and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the
contract, petitioner complied with his part of the agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by
the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of
the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984,
however, when the respondent bank decided to exercise its option and informed petitioner, through
a letter, 2 of its intention to buy the property at the agreed price of not greater than P210.00 per
square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied
that he is no longer selling the property.3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by
respondent against petitioner. In the complaint, respondent alleged that during the negotiations it
made clear to petitioner that it intends to stay permanently on property once its branch office is
opened unless the exigencies of the business requires otherwise.

Ruling:

There is no dispute that the contract is valid and existing between the parties, as found by both the
trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to
have it ignored.

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. Although, this Court will not hesitate to rule out blind adherence
to terms where facts and circumstances will show that it is basically one-sided. 10

29
We do not find the situation in the present case to be inequitable. 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. He is amply equipped to drive a hard bargain if he
would be so minded to.

Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied
in the present case, because 1) the option given to the respondent bank was not supported by a
consideration distinct from the price; and 2) that the stipulated price of "not greater than P210.00
per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period
to accept, the offer maybe withdrawn at anytime before acceptance by communicating such
withdrawal, except when the option is founded upon consideration, as something paid or promised.
On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and
sell a determinate thing for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance
by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon
acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds
of the parties as to the thing which is determinate and the price which is certain. 14 In which case, the
parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the
buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain
merchandise or property, at any time within the agreed period, at a fixed price. This being his
prerogative, he may not be compelled to exercise the option to buy before the time
expires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed in
the case of Vda. de Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at
bar. The said case also involved a lease contract with option to buy where we had occasion to say
that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he
choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor
the building and/or improvements constructed and/or made by the former, if he fails to exercise his
option to buy leased premises." 17

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. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain
or definite. A price is considered certain if it is so with reference to another thing certain or when the
determination thereof is left to the judgment of a specified person or persons. 19 And generally, gross
inadequacy of price does not affect a contract of sale. 20

30
Contracts are to be construed according to the sense and meaning of the terms which the parties
themselves have used. In the present dispute, there is evidence to show that the intention of the
parties is to peg the price at P210 per square meter.

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing
the bank manager to effect the sale immediately, means that he understood perfectly the terms of
the contract. He even had the same property mortgaged to the respondent bank sometime in 1979,
without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of
P210 per square meter.

31
Malbarosa v CA GR No 125761 April 30 2003

Facts:

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of
companies wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC).
The petitioner Salvador P. Malbarosa was the president and general manager of Philtectic
Corporation, and an officer of other corporations belonging to the SEADC group of companies. The
respondent assigned to the petitioner one of its vehicles covered by Certificate of Registration No.
042758651 described as a 1982 model Mitsubishi Gallant Super Saloon, with plate number PCA 180
for his use. He was also issued membership certificates in the Architectural Center, Inc. Louis Da
Costa was the president of the respondent and Commonwealth Insurance Co., Inc., while Senen
Valero was the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman of the
Board of Directors of Philtectic Corporation.

Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to
retire from the SEADC group of companies and requested that his 1989 incentive compensation as
president of Philtectic Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to
Senen Valero tendering his resignation, effective February 28, 1990 from all his positions in the
SEADC group of companies, and reiterating therein his request for the payment of his incentive
compensation for 1989.2

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

On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the
petitioner3 stating therein that petitioner's resignation from all the positions in the SEADC group of
companies had been accepted by the respondent, and that he was entitled to an incentive
compensation in the amount of P251,057.67, and proposing that the amount be satisfied, thus:

The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on
the space provided therefor and the date thereof on the right bottom portion of the letter, thus:

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

32
On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the
March 14, 1990 Letter-offer of the respondent and demanding that the petitioner return the car and
his membership certificate in the Architectural Center, Inc. within 24 hours from his receipt
thereof.8 The petitioner received the original copy of the letter on the same day.

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

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

Issue:

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

Ruling:

We do not agree with the petitioner.

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

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

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer
may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a
consent. The contract does not come into existence.24 To produce a contract, there must be
acceptance of the offer which may be express or implied25 but must not qualify the terms of the
offer. The acceptance must be absolute, unconditional and without variance of any sort from the
offer.26

The acceptance of an offer must be made known to the offeror.27 Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and
acceptance.28 The offeror may withdraw its offer and revoke the same before acceptance thereof by
the offeree. The contract is perfected only from the time an acceptance of an offer is made known to
the offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be
indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror.
On the other hand, an attempt on the part of the offeree to accept the offer in a different manner

33
does not bind the offeror as the absence of the meeting of the minds on the altered type of
acceptance.29 An offer made inter praesentes must be accepted immediately. If the parties intended
that there should be an express acceptance, the contract will be perfected only upon knowledge by
the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in
the manner prescribed by the offeror is not effective but constitutes a counter-offer which the
offeror may accept or reject.30 The contract is not perfected if the offeror revokes or withdraws its
offer and the revocation or withdrawal of the offeror is the first to reach the offeree.31 The
acceptance by the offeree of the offer after knowledge of the revocation or withdrawal of the offer is
inefficacious. The termination of the contract when the negotiations of the parties terminate and the
offer and acceptance concur, is largely a question of fact to be determined by the trial court.32

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

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

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

On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and
controlled subsidiary of the respondent, had no authority to withdraw the offer of the respondent.
The resolution of the respondent authorizing Philtectic Corporation to take such action against the

34
petitioner including the institution of an action against him for the recovery of the subject car does
not authorize Philtectic Corporation to withdraw the March 14, 1990 Letter-offer of the respondent.
The withdrawal by Philtectic Corporation on April 4, 1990 of the offer of the respondent was
ineffective insofar as the petitioner was concerned. The respondent, for its part, asserts that the
petitioner had failed to put in issue the matter of lack of authority of Philtectic Corporation to
withdraw for and in behalf of the respondent its March 14, 1990 Letter-offer. It contends that the
authority of Philtectic Corporation to take such action including the institution of an action against
the petitioner for the recovery of the car necessarily included the authority to withdraw the
respondent's offer. Even then, there was no need for the respondent to withdraw its offer because
the petitioner had already rejected the respondent's offer on March 16, 1990 when the petitioner
received the original of the March 14, 1990 Letter-offer of the respondent without the petitioner
affixing his signature on the space therefor.

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

35
Vda. De Ape v CA GR No 133638 April 15 2005

Facts:

Cleopas Ape was the registered owner of a parcel of land particularly known as Lot No. 2319 of the
Escalante Cadastre of Negros Occidental and covered by Original Certificate of Title (OCT) No. RP
1379 (RP-154 [300]).2 Upon Cleopas Ape's death sometime in 1950, the property passed on to his
wife, Maria Ondoy, and their eleven (11) children, namely: Fortunato, Cornelio, Bernalda,
Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela, Dominador, and Angelina, all surnamed
Ape.

On 15 March 1973, Generosa Cawit de Lumayno (private respondent herein), joined by her husband,
Braulio,3 instituted a case for "Specific Performance of a Deed of Sale with Damages" against
Fortunato and his wife Perpetua (petitioner herein) before the then Court of First Instance of Negros
Occidental. It was alleged in the complaint that on 11 April 1971, private respondent and Fortunato
entered into a contract of sale of land under which for a consideration of P5,000.00, Fortunato
agreed to sell his share in Lot No. 2319 to private respondent. The agreement was contained in a
receipt prepared by private respondent's son-in-law, Andres Flores, at her behest. Said receipt was
attached to the complaint as Annex "A" thereof and later marked as Exhibit "G" for private
respondent. The receipt states:

As private respondent wanted to register the claimed sale transaction, she supposedly demanded
that Fortunato execute the corresponding deed of sale and to receive the balance of the
consideration. However, Fortunato unjustifiably refused to heed her demands. Private respondent,
therefore, prayed that Fortunato be ordered to execute and deliver to her "a sufficient and
registrable deed of sale involving his one-eleventh (1/11) share or participation in Lot No. 2319 of the
Escalante Cadastre; to pay P5,000.00 in damages; P500.00 reimbursement for litigation expenses as
well as additional P500.00 for every appeal made; P2,000.00 for attorney's fees; and to pay the
costs.5

Fortunato and petitioner denied the material allegations of the complaint and claimed that
Fortunato never sold his share in Lot No. 2319 to private respondent and that his signature
appearing on the purported receipt was forged. By way of counterclaim, the defendants below
maintained having entered into a contract of lease with respondent involving Fortunato's portion of
Lot No. 2319. This purported lease contract commenced in 1960 and was supposed to last until 1965
with an option for another five (5) years. The annual lease rental was P100.00 which private
respondent and her husband allegedly paid on installment basis. Fortunato and petitioner also
assailed private respondent and her husband's continued possession of the rest of Lot No. 2319
alleging that in the event they had acquired the shares of Fortunato's co-owners by way of sale, he
was invoking his right to redeem the same. Finally, Fortunato and petitioner prayed that the lease
contract between them and respondent be ordered annulled; and that respondent be ordered to pay
them attorney's fees; moral damages; and exemplary damages.

Ruling:

Article 1623 of the Civil Code provides:

36
The right of legal pre-emption or redemption shall not be exercised except within thirty days from
the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of
sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the
vendor that he has given written notice thereof to all possible redemptioners.

Despite the plain language of the law, this Court has, over the years, been tasked to interpret the
"written notice requirement" of the above-quoted provision. In the case Butte v. Manuel Uy & Sons,
Inc.,32 we declared that –

In considering whether or not the offer to redeem was timely, we think that the notice given by the
vendee (buyer) should not be taken into account. The text of Article 1623 clearly and expressly
prescribes that the thirty days for making the redemption are to be counted from notice in writing by
the vendor. Under the old law (Civ. Code of 1889, Art. 1524), it was immaterial who gave the notice;
so long as the redeeming co-owner learned of the alienation in favor of the stranger, the redemption
period began to run. It is thus apparent that the Philippine legislature in Article 1623 deliberately
selected a particular method of giving notice, and that method must be deemed exclusive. (39 Am.
Jur., 237; Payne vs. State, 12 S.W. 2(d) 528). As ruled in Wampler vs. Lecompte, 150 Atl. 458 (affd. in
75 Law Ed. [U.S.] 275) –

why these provisions were inserted in the statute we are not informed, but we may assume until the
contrary is shown, that a state of facts in respect thereto existed, which warranted the legislature in
so legislating.

The reasons for requiring that the notice should be given by the seller, and not by the buyer, are
easily divined. The seller of an undivided interest is in the best position to know who are his co-
owners that under the law must be notified of the sale. Also, the notice by the seller removes all
doubts as to fact of the sale, its perfection; and its validity, the notice being a reaffirmation thereof,
so that the party notified need not entertain doubt that the seller may still contest the alienation.
This assurance would not exist if the notice should be given by the buyer

… Art. 1623 of the Civil Code is clear in requiring that the written notification should come from the
vendor or prospective vendor, not from any other person. There is, therefore, no room for
construction. Indeed, the principal difference between Art. 1524 of the former Civil Code and Art.
1623 of the present one is that the former did not specify who must give the notice, whereas the
present one expressly says the notice must be given by the vendor. Effect must be given to this
change in statutory language.41

In this case, the records are bereft of any indication that Fortunato was given any written notice of
prospective or consummated sale of the portions of Lot No. 2319 by the vendors or would-be
vendors. The thirty (30)-day redemption period under the law, therefore, has not commenced to
run.

Despite this, however, we still rule that petitioner could no longer invoke her right to redeem from
private respondent for the exercise of this right "presupposes the existence of a co-ownership at the
time the conveyance is made by a co-owner and when it is demanded by the other co-owner or co-
owners."42 The regime of co-ownership exists when ownership of an undivided thing or right belongs
to different persons.43 By the nature of a co-ownership, a co-owner cannot point to specific portion of
the property owned in common as his own because his share therein remains intangible.44 As legal
redemption is intended to minimize co-ownership,45 once the property is subdivided and distributed
among the co-owners, the community ceases to exist and there is no more reason to sustain any
right of legal redemption.46

37
In this case, records reveal that although Lot No. 2319 has not yet been formally subdivided, still, the
particular portions belonging to the heirs of Cleopas Ape had already been ascertained and they in
fact took possession of their respective parts.

Similarly telling of the partition is the stipulation of the parties during the pre-trial wherein it was
admitted that Lot No. 2319 had not been subdivided nevertheless, "Fortunato Ape had possessed a
specific portion of the land ostensibly corresponding to his share."49

From the foregoing, it is evident that the partition of Lot No. 2319 had already been effected by the
heirs of Cleopas Ape. Although the partition might have been informal is of no moment for even an
oral agreement of partition is valid and binding upon the parties.50 Likewise, the fact that the
respective shares of Cleopas Ape's heirs are still embraced in one and the same certificate of title and
have not been technically apportioned does not make said portions less determinable and
identifiable from one another nor does it, in any way, diminish the dominion of their respective
owners.

urning now to the second issue of the existence of a contract of sale, we rule that the records of this
case betray the stance of private respondent that Fortunato Ape entered into such an agreement
with her.

A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is
born from the moment there is a meeting of minds upon the thing which is the object of the sale and
upon the price.52 Upon its perfection, the parties may reciprocally demand performance, that is, the
vendee may compel the transfer of the ownership and to deliver the object of the sale while the
vendor may demand the vendee to pay the thing sold.53 For there to be a perfected contract of sale,
however, the following elements must be present: consent, object, and price in money or its
equivalent. In the case of Leonardo v. Court of Appeals, et al.,54 we explained the element of consent,
to wit:

The essence of consent is the agreement of the parties on the terms of the contract, the acceptance
by one of the offer made by the other. It is the concurrence of the minds of the parties on the object
and the cause which constitutes the contract. The area of agreement must extend to all points that
the parties deem material or there is no consent at all.

To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous.
Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence;
spontaneity by fraud.55

In this jurisdiction, the general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for his concerns
and that private dealings have been entered into fairly and regularly.56 The exception to this rule is
provided for under Article 1332 of the Civil Code which provides that "[w]hen one of the parties is
unable to read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former."

38
In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she
bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape
who was an illiterate. This she failed to do. While she claimed in her testimony that the contents of
the receipt were made clear to Fortunato, such allegation was debunked by Andres Flores himself
when the latter took the witness stand.

As can be gleaned from Flores's testimony, while he was very much aware of Fortunato's inability to
read and write in the English language, he did not bother to fully explain to the latter the substance
of the receipt (Exhibit "G"). He even dismissed the idea of asking somebody else to assist Fortunato
considering that a measly sum of thirty pesos was involved. Evidently, it did not occur to Flores that
the document he himself prepared pertains to the transfer altogether of Fortunato's property to his
mother-in-law. It is precisely in situations such as this when the wisdom of Article 1332 of the Civil
Code readily becomes apparent which is "to protect a party to a contract disadvantaged by illiteracy,
ignorance, mental weakness or some other handicap."58

In sum, we hold that petitioner is no longer entitled to the right of redemption under Article 1632 of
the Civil Code as Lot No. 2319 had long been partitioned among its co-owners. This Court likewise
annuls the contract of sale between Fortunato and private respondent on the ground of vitiated
consent.

39
Georg v Holy Trinity College GR No. 190408 July 20 2016

Facts:

The Holy Trinity College Grand Chorale and Dance Company (the Group) was organized in 1987 by
Sister Teresita Medalle (Sr. Medalle ), the President of respondent Holy Trinity College in Puerto
Princesa City. The Grand Chorale and Dance Company were two separate groups but for the purpose
of performing locally or abroad, they were usually introduced as one entity. The Group was
composed of students from Holy Trinity College.

In 2001, the Group was slated to perform in Greece, Italy, Spain and Germany. Edward Enriquez
(Enriquez), who allegedly represented Sr. Medalle, contacted petitioner Benjie B. Georg to seek
assistance for payment of the Group's international airplane tickets. Petitioner is the Filipino wife of a
German national Heinz Georg. She owns a German travel agency named D'Travellers Reiseburo
Georg. Petitioner, in tum, requested her brother, Atty. Benjamin Belarmino, Jr. (Atty. Belarmino), to
represent her in the negotiation with Enriquez. Enriquez was referred to petitioner by Leonora Dietz
(Dietz), another Filipino-German who has helped Philippine cultural groups obtain European
engagements, including financial assistance.

On 24 April 2001, a Memorandum of Agreement with Deed of Assignment3 (MOA) was executed
between petitioner, represented by Atty. Belarmino, as first party-assignee; the Group, represented
by Sr. Medalle, O.P. and/or its Attorney-in-Fact Enriquez, as second-party assignor and S.C. Roque
Group of Companies Holding Limited Corporation and S.C. Roque Foundation Incorporated,
represented by Violeta P. Buenaventura, as foundation-grantor. Under the said Agreement,
petitioner, through her travel agency, will advance the payment of international airplane tickets
amounting to P4,624,705.00 in favor of the Group on the assurance of the Group represented by Sr.
Medalle through Enriquez that there is a confirmed financial allocation of P4,624,705.00 from the
foundation-grantor, S.C. Roque Foundation (the Foundation). The second-party assignor assigned
said amount in favor of petitioner. Petitioner paid for the Group's domestic and international airplane
tickets.

In an Amended Complaint4 dated 15 August 2001 for a Sum of Money with Damages filed before the
RTC, Branch 18, Tabaco City, petitioner claimed that the second-party assignor/respondent and the
foundation-grantor have not paid and refused to pay their obligation under the MOA. Petitioner
prayed that they be ordered to solidarily pay the amount of P4,624,705.00 representing the principal
amount mentioned in the Agreement, moral, exemplary, and actual damages, legal fees, and cost of
suit.5 The corresponding summonses were served.

On 14 September 2001, respondent filed a motion to dismiss on the ground that petitioner had no
cause of action against it. On 6 November 2001, petitioner filed a Petition for Issuance of a Writ of
Attachment.

Issue:

The primordial issue is whether respondent is liable under the MOA. Respondent primarily argues
that it is not a party to the MOA. Petitioner claims otherwise because Sr. Medalle, in her capacity as
President of Holy Trinity College, affixed her thumbmark in the MOA. Two sub-issues necessarily

40
arise therefrom: 1) whether Sister Medalle freely gave her full consent to the MOA by affixing her
thumbmark and 2) whether she is authorized by respondent to enter into the MOA.

Ruling:

The essential requisites of a contract under Article 1318 of the New Civil Code are:

(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.

The validity of the MOA is being assailed for a defect in consent. Under Article 1330 of the Civil Code,
consent may be vitiated by any of the following: (1) mistake, (2) violence, (3) intimidation, (4) undue
influence, and (5) fraud. Under the same provision, the contract becomes voidable.

Petitioner claims that Sr. Medalle knew fully well the import of the MOA when she affixed her
thumbmark therein while respondent alleges that fraud was employed to induce Sr. Medalle to affix
her thumbmark.

There is fraud when one party is induced by the other to enter into a contract, through and solely
because of the latter's insidious words or machinations. But not all forms of fraud can vitiate
consent. Under Article 1330, fraud refers to dolo causante or causal fraud, in which, prior to or
simultaneous with execution of a contract, one party secures the consent of the other by using
deception, without which such consent would not have been given.15

Between the two parties, we are inclined to give credence to petitioner. First, the trial court did not
give probative weight to the deposition of Sr. Medalle basically stating that respondent's counsel
failed to conform to Section 20, Rule 23 of the Rules of Court which provides that:

Second, Sr. Medalle is presumed to know the import of her thumbmark in the MOA. While she was
indeed confined at the UST Hospital at that time, respondent however failed to prove that Sr.
Medalle was too ill to comprehend the terms of the contract. True, Sr. Medalle suffered a stroke but
respondent did not present any evidence to show that her mental faculty was impaired by her
illness.

Moreover, there is nothing in the deposition that tends to prove that Sr. Medalle's consent was
vitiated.

Sr. Medalle claimed that she affixed her thumbmark on the MOA on the basis of Enriquez's
representation that her signature/thumbmark is necessary to facilitate the release of the loan. As
intended, the affixing of her thumbmark in fact caused the immediate release of the loan.
Petitioner's claim that the provisions of the MOA were read to Sr. Medalle was found credible by the
Court of Appeals. The Court of Appeals discussed at length how proper care and caution was taken
by Atty. Belarmino to verify what the Groups's trip was all about and the extent of the authority of Sr.
Medalle regarding the project. Thus:

It simply defies logic that Atty. Belarmino would employ fraud just so Sr. Medalle could affix her
thumbmark to facilitate the release of the loan coming from Atty. Belarmino himself.

41
At this juncture, it should be emphasized that a notarized document enjoys the presumption of
regularity and is conclusive as to the truthfulness of its contents absent any clear and convincing
proof to the contrary.19

Third, respondent claims that Sr. Medalle was not authorized by the corporation to enter into any
loan agreement thus the MOA executed was null and void for being ultra vires. Petitioner invokes, as
refutation, the doctrine of apparent authority.

Respondent's denial of privity to the loan contract was based on the following reasons: 1) that
respondent's name does not appear on the MOA; 2) that Sr. Medalle was no longer the President of
Holy Trinity College when she affixed her thumbmark on the MOA; and 3) that Sr. Medalle was not
authorized by respondent through a board resolution to enter into such agreement.

Sr. Medalle, as President of Holy Trinity, is clothed with sufficient authority to enter into a loan
agreement. As held by the trial court, the Holy Trinity College's Board of Trustees never contested the
standing of the Dance and Chorale Group and had in fact lent its support in the form of sponsoring
unifonns or freely allowed the school premises to be used by the group for their practice sessions. In
addition, petitioner was correct in citing snippets of Sr. Navarro's testimony to prove that the Board
of Trustees, the administration, as well as the congregation to which they belong have consented or
ratified the actions of Sr. Medalle, thus: The doctrine of apparent authority provides that a
corporation will be estopped from denying the agent's authority if it knowingly permits one of its
officers or any other agent to act within the scope of an apparent authority, and it holds him out to
the public as possessing the power to do those acts.25

The existence of apparent authority may be ascertained through (1) the general manner in which the
corporation holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, whether within or beyond the
scope of his ordinary powers.26

In this case, Sr. Medalle formed and organized the Group. She had been giving financial support to
the Group, in her capacity as President of Holy Trinity College. Sr. Navarro admitted that the Board of
Trustees never questioned the existence and activities of the Group. Thus, any agreement or contract
entered into by Sr. Medalle as President of Holy Trinity College relating to the Group bears the
consent and approval of respondent. It is through these dynamics that we cannot fault petitioner for
relying on Sr. Medalle's authority to transact with petitioner.

Finding that Sr. Medalle possessed full mental faculty in affixing her thumbmark in the MOA and that
respondent is hereby bound by her actions, we reverse the ruling of the Court of Appeals.

42
Orosco v Gualvez GR No. 204029 June 4 2014

Facts:

On October 26, 2004, petitioners Avelina Abarientos Rebusquillo (Avelina) and Salvador Orosco
(Salvador) filed a Complaint for annulment and revocation of an Affidavit of Self-Adjudication dated
December 4, 2001 and a Deed of Absolute Sale dated February 6, 2002 before the court a quo. In it,
petitioners alleged that Avelina was one of the children of Eulalio Abarientos (Eulalio) and Victoria
Villareal (Victoria). Eulalio died intestate on July 3, 1964, survived by his wife Victoria, six legitimate
children, and one illegitimate child, namely: (1) Avelina Abarientos-Rebusquillo, petitioner in this
case; (2) Fortunata Abarientos-Orosco, the mother of petitioner Salvador; (3) Rosalino Abarientos; (4)
Juan Abarientos; (5) Feliciano Abarientos; (6) Abraham Abarientos; and (7) Carlos Abarientos. His
wife Victoria eventually died intestate on June 30, 1983.

On his death, Eulalio left behind an untitled parcel of land in Legazpi City consisting of two thousand
eight hundred sixty-nine(2,869) square meters, more or less, which was covered by Tax Declaration
ARP No. (TD) 0141.

In 2001, Avelina was supposedly made to sign two (2) documents by her daughter Emelinda
Rebusquillo-Gualvez (Emelinda) and her son-in-law Domingo Gualvez (Domingo), respondents in this
case, on the pretext that the documents were needed to facilitate the titling of the lot. It was only in
2003, so petitioners claim, that Avelina realized that what she signed was an Affidavit of Self-
Adjudication and a Deed of Absolute Sale in favor of respondents.

As respondents purportedly ignored her when she tried to talk to them, Avelina sought the
intervention of the RTC to declare null and void the two (2) documents in order to reinstate TD0141
and so correct the injustice done to the other heirs of Eulalio.

Ruling:

In like manner, the Deed of Absolute Sale executed by Avelina in favor of respondents was correctly
nullified and voided by the RTC. Avelina was not in the right position to sell and transfer the absolute
ownership of the subject property to respondents. As she was not the sole heir of Eulalio and her
Affidavit of Self-Adjudication is void, the subject property is still subject to partition. Avelina, in fine,
did not have the absolute ownership of the subject property but only an aliquot portion. What she
could have transferred to respondents was only the ownership of such aliquot portion. It is apparent
from the admissions of respondents and the records of this case that Avelina had no intention to
transfer the ownership, of whatever extent, over the property to respondents. Hence, the Deed of
Absolute Sale is nothing more than a simulated contract.

The Civil Code provides:

Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
(emphasis supplied)

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good
customs, public order or public policy binds the parties to their real agreement.

43
In Heirs of Policronio Ureta Sr. v. Heirs of Liberato Ureta,11 this Court explained the concept of the
simulation of contracts:

In absolute simulation, there is a colorable contract but it has no substance as the parties have no
intention to be bound by it. The main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in any way alter the juridical
situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the contract. However, if the
parties state a false cause in the contract to conceal their real agreement, the contract is relatively
simulated and the parties are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to the content or terms of the
contract, the agreement is absolutely binding and enforceable between the parties and their
successors in interest. (emphasis supplied)

In the present case, the true intention of the parties in the execution of the Deed of Absolute Sale is
immediately apparent from respondents’ very own Answer to petitioners’ Complaint. As
respondents themselves acknowledge, the purpose of the Deed of Absolute Sale was simply to
"facilitate the titling of the [subject] property," not to transfer the ownership of the lot to them.
Furthermore, respondents concede that petitioner Salvador remains in possession of the property
and that there is no indication that respondents ever took possession of the subject property after its
supposed purchase. Such failure to take exclusive possession of the subject property or, in the
alternative, to collect rentals from its possessor, is contrary to the principle of ownership and is a
clear badge of simulation that renders the whole transaction void.

44
Mayor v Belen GR No 151035 June 3 2004

Facts:

Petitioner Andrea Mayor was the original owner of the a parcel of land located at Bonifacio Street,
San Pablo City measuring about 179 square meters, more or less. On November 27, 1979,
respondent Lourdes M. Belen purchased the subject property from Andrea Mayor in consideration of
P18,000.00 payable in installments. Lourdes M. Belen was able to pay P11,445.00 out of the
P18,000.00 purchase price leaving a balance of P6,555.00.

On June 17, 1980, Lourdes M. Belen sold back the subject property to Andrea Mayor in consideration
of P18,000.00. For this purpose, Lourdes M. Belen executed the Kasulatan ng Bilihang Tuluyan in
favor of Andrea Mayor.

On June 19, 1980, to secure a loan in the amount of P12,000.00 obtained from Lourdes M. Belen,
Andrea Mayor executed a real estate mortgage over the subject property denominated as Kasulatan
ng Sanglaan in favor of the former.

On August 4, 1980, Lourdes M. Belen filed a civil suit against Andrea Mayor, docketed as Civil Case
No. SP-1755, for annulment of the Kasulatang Bilihang Tuluyan and Kasulatan ng Sanglaan.

In the complaint, Lourdes alleged, among others, that petitioner Andrea Mayor, through co-
petitioner Vergel Romulo a.k.a. Virgilio Romulo, made her believe that the sale in her favor by Andrea
is void because the deed of conveyance did not reflect the true agreement of the parties as to the
mode of payment of the purchase price, i.e., the purchase price was made on installments and not in
cash as stipulated in the document. Lourdes further averred that she was also made to believe that
she might lose what she had already paid which amounted to 70% of the purchase price. She was
convinced by the representations of Andrea and Romulo that it would be best for the latter to make
it appear that Andrea was merely mortgaging the subject property to her. Lourdes readily agreed to
the scheme believing that it was for the protection of her rights. It turned out that the scheme was in
fact a ruse employed by Romulo and Andrea to re-acquire the property, thus, Lourdes’s consent in
the execution of the Kasulatan ng Bilihang Tuluyan and Kasulatan ng Sanglaan was obtained through
fraud and undue influence.

In her answer with counterclaim, Andrea Mayor denied the material allegations of the complaint
insisting, in sum, that Lourdes M. Belen freely and voluntarily executed the subject contracts and the
same is binding on the parties thereto.

Issue:

The issue for resolution is whether or not fraud attended the execution of the Kasulatan ng
Bilihan and Kasulatan ng Sanglaan.

Ruling:

The Civil Code provides that –

45
ART. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed
to.

As defined, fraud refers to all kinds of deception, whether through insidious machination,
manipulation, concealment or misrepresentation to lead another party into error.4 The deceit
employed must be serious. It must be sufficient to impress or lead an ordinarily prudent person into
error, taking into account the circumstances of each case.5

In support of their cause, petitioners intone the shopworn legal maxim that fraus est odiosa et non
praesumenda – and argue that to establish the claim of fraud, evidence must be clear and more than
merely preponderant. They contend, in sum, that the two deeds were duly executed by the parties
thereto in accordance with the formalities required by law and as public documents the evidence to
overcome their recitals is wanting.

We disagree.

Impressive as the arguments petitioners have advanced in support of their cause may be, the fatal
flaw lies in their inability to convincingly substantiate their claim that Lourdes M. Belen signed the
contracts freely and voluntarily.

This brings to the fore Lourdes M. Belen’s limited educational attainment. While indeed petitioners
point out that the deeds denominated as Kasulatan ng Bilihang Tuluyan and Kasulatan ng
Sanglaan were executed in Tagalog, a close scrutiny thereof shows that they are practically literal
translations of their English counterparts. Thus, the mere fact that the documents were executed in
the vernacular neither clarified nor simplified matters for Lourdes who admitted on cross-
examination that she merely finished Grade 3, could write a little, and understand a little of
the Tagalog language.6

The appellate court could not then be faulted when it invoked Article 1332 of the Civil Code which
states:

ART. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.

As aptly pointed out by the Court of Appeals, the principle that a party is presumed to know the
import of a document to which he affixes his signature is modified by the foregoing article. Under the
said article, where a party is unable to read or when the contract is in a language not understood by
a party and mistake or fraud is alleged, the obligation to show that the terms of the contract had
been fully explained to said party who is unable to read or understand the language of the contract
devolves on the party seeking to enforce it. The burden rests upon the party who seeks to enforce
the contract to show that the other party fully understood the contents of the document. If he fails
to discharge this burden, the presumption of mistake, if not, fraud, stands unrebutted and
controlling.7

In this case, petitioners alleged that Lourdes M. Belen affixed her signature on the questioned
contracts freely and voluntarily. We have assiduously scoured the record but like the appellate court
we have not come across convincing evidence to support their allegations. In civil cases, he who
alleges a fact has the burden of proving it by a preponderance of evidence.8 Suffice it to state that
such self-serving claims are not enough to rebut the presumption of fraud provided for in Article
1332 of the Civil Code. As the party claiming affirmative relief from the court, it is incumbent upon

46
petitioners to convincingly prove their claim. This they failed to do. Bare allegations, unsubstantiated
by evidence are not equivalent to proof under our Rules.9 In short, mere allegations are not
evidence.10

Concededly, both the Kasulatan ng Bilihang Tuluyan and the Kasulatan ng Sanglaan are public
documents and there is no dispute that generally, a notarized document carries the evidentiary
weight conferred upon it with respect to its due execution. In addition, documents acknowledged
before a notary public have in their favor the presumption of regularity. However, the presumption is
not absolute and may be rebutted by clear and convincing evidence to the contrary.11 The
presumption cannot be made to apply in this case because the regularity in the execution of the
documents were challenged in the proceedings below where their prima facie validity was
overthrown by the highly questionable circumstances pointed out by both trial and appellate courts.
Furthermore, notarization per se is not a guarantee of the validity of the contents of a document.
Indeed, as stated by the Supreme Court in Nazareno v. CA:

47
Dauden Hemaez v Delos Angeles 27 SCRA 1276

Facts:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, had filed a complaint against herein
private respondents, Hollywood Far East Productions, Inc., and its President and General Manager,
Ramon Valenzuela, to recover P14,700.00 representing a balance allegedly due said petitioner for her
services as leading actress in two motion pictures produced by the company, and to recover
damages. Upon motion of defendants, the respondent court (Judge Walfrido de los Angeles
presiding) ordered the complaint dismissed, mainly because the "claim of plaintiff was not evidenced
by any written document, either public or private", and the complaint "was defective on its face" for
violating Articles 1356 and 1358 of the Civil, Code of the Philippines, as well as for containing
defective allege, petitions. Plaintiff sought reconsideration of the dismissal and for admission of an
amended complaint, attached to the motion. The court denied reconsideration and the leave to
amend; whereupon, a second motion for reconsideration was filed. Nevertheless, the court also
denied it for being pro forma, as its allegations "are, more or less, the same as the first motion", and
for not being accompanied by an affidavit of merits, and further declared the dismissal final and
unappealable. In view of the attitude of the Court of First Instance, plaintiff resorted to this Court.

The answer sets up the defense that "the proposed amended complaint did not vary in any material
respect from the original complaint except in minor details, and suffers from the same vital defect of
the original complaint", which is the violation of Article 1356 of the Civil Code, in that the contract
sued upon was not alleged to be in writing; that by Article 1358 the writing was absolute and
indispensable, because the amount involved exceeds five hundred pesos; and that the second
motion for reconsideration did not interrupt the period for appeal, because it was not served on
three days' notice.

Ruling:

In the matter of formalities, the contractual system of our Civil Code still follows that of the Spanish
Civil Code of 1889 and of the "Ordenamiento de Alcala" 2 of upholding the spirit and intent of the
parties over formalities: hence, in general, contracts are valid and binding from their perfection
regardless of form whether they be oral or written. This is plain from Articles 1315 and 1356 of the
present Civil Code. Thus, the first cited provision prescribes:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis
supplied)

Concordantly, the first part of Article 1356 of the Code Provides:

ART. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present.... (Emphasis supplied)

These essential requisites last mentioned are normally (1) consent (2) proper subject matter, and (3)
consideration or causa for the obligation assumed (Article 1318). 3 So that once the three elements
exist, the contract is generally valid and obligatory, regardless of the form, oral or written, in which
they are couched.lawphi1.nêt

48
To this general rule, the Code admits exceptions, set forth in the second portion of Article 1356:

However, when the law requires that a contract be in some form in order that it may be valid or
enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable....

It is thus seen that to the general rule that the form (oral or written) is irrelevant to the binding
effect inter partes of a contract that possesses the three validating elements of consent, subject
matter, and causa, Article 1356 of the Code establishes only two exceptions, to wit:

(a) Contracts for which the law itself requires that they be in some particular form (writing) in order
to make them valid and enforceable (the so-called solemn contracts). Of these the typical example is
the donation of immovable property that the law (Article 749) requires to be embodied in a public
instrument in order "that the donation may be valid", i.e., existing or binding. Other instances are the
donation of movables worth more than P5,000.00 which must be in writing, "otherwise the donation
shall be void" (Article 748); contracts to pay interest on loans (mutuum) that must be "expressly
stipulated in writing" (Article 1956); and the agreements contemplated by Article 1744, 1773, 1874
and 2134 of the present Civil Code.

(b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in
those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not
being provable by mere oral testimony (unless wholly or partly executed), these contracts are
exceptional in requiring a writing embodying the terms thereof for their enforceability by action in
court.

The contract sued upon by petitioner herein (compensation for services) does not come under either
exception. It is true that it appears included in Article 1358, last clause, providing that "all other
contracts where the amount involved exceeds five hundred pesos must appear in writing, even a
private one." But Article 1358 nowhere provides that the absence of written form in this case will
make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that
contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence
of writing.

ART. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action the contract. (Emphasis supplied) .

It thus becomes inevitable to conclude that both the court a quo as well as the private respondents
herein were grossly mistaken in holding that because petitioner Dauden's contract for services was
not in writing the same could not be sued upon, or that her complaint should be dismissed for failure
to state a cause of action because it did not plead any written agreement.

The basic error in the court's decision lies in overlooking that in our contractual system it is not
enough that the law should require that the contract be in writing, as it does in Article 1358. The law
must further prescribe that without the writing the contract is not valid or not enforceable by action.

49
Aguinaldo v Torres GR No 225808 September 11 2017

Facts:

On March 3, 2003, petitioners filed a complaint6 for annulment of sale, cancellation of title, and
damages against respondent before the RTC. They claimed that they are the registered owners of
three (3) lots covered by Transfer Certificates of Title (TCT) Nos. T-93596, T-87764, and T-87765
situated in Tanza, Cavite (subject properties).7 Sometime in December 2000, they discovered that
the titles to the subject properties were transferred to respondent who, in bad faith, and through
fraud, deceit, and stealth, caused the execution of a Deed of Absolute Sale8 dated July 21, 1979
(1979 deed of sale), purportedly selling the subject properties to him, for which he was issued TCT
Nos. T-305318, T-305319, and T-3053209 (subject certificates of title).

Respondent filed his Answer with Counterclaim,10 denying participation in the execution of the 1979
deed of sale, and averring that the subject properties were validly sold by petitioners to him through
a Deed of Absolute Sale11 dated March 10, 1991 (1991 deed of sale).12 He claimed that petitioners
caused the registration of the 1979 deed of sale with the Register of Deeds of Trece Martires City,
and the transfer of title in his name, hence, they are estopped from impugning the validity of his
title. Moreover, the action has prescribed, having been filed beyond four (4) years from discovery of
the averred fraud, reckoned from the registration of the said deed on March 26, 1991.13 He further
alleged that petitioners only filed the instant baseless suit to harass him in view of their acrimonious
relationship, and thus, interposed a counterclaim for moral damages and attorney's fees.

Issue:

The essential issue for the Court's resolution is whether or not the CA committed reversible error in
ruling that there was a valid conveyance of the subject properties to respondent and directing
petitioners to execute a registrable deed of conveyance in his favor within thirty (30) days from the
finality of the decision.

Ruling:

At the outset, it should be pointed out that the 1991 deed of sale was improperly notarized, having
been signed by respondent and witness Bucapal in Makati City and by petitioners in the USA, but
notarized in Tanza, Cavite,44 which is in violation of the notarial officer's duty to demand that the
party acknowledging a document must appear before him,45 sign the document in his
presence,46 and affirm the contents and truth of what are stated therein.47 As aptly observed by the
CA, the evidence on record amply shows that Nelia could not have been in the Philippines at the
time the said deed was signed.48

The improper notarization of the 1991 deed of sale stripped it of its public character and reduced it
to a private instrument.49 Hence, it is to be examined under the parameters of Section 20, Rule 132
of the Rules of Court (Rules) which pertinently provides that "[b]efore any private document offered
as authentic is received in evidence, its due execution and authenticity must be
proved either: (a) [b]y anyone who saw the document executed or written; or (b) [b]y evidence of
the genuineness of the signature or handwriting of the maker."50 Emphases supplied.

50
In relation thereto, Section 22, Rule 132 of the same Rules provides the manner by which the
genuineness of handwriting may be proved, i.e.: (a) by any witness who believes it to be the
handwriting of such person because he has seen the person write; or he has seen writing purporting
to be his upon which the witness has acted or been charged; (b) by a comparison, made by the
witness or the court, with writings admitted or treated as genuine by the party against whom the
evidence is offered, or proved to be genuine to the satisfaction of the judge.

In this case, the CA made an independent examination of petitioners' signatures on the 1991 deed of
sale (questioned signatures), and concluded that they are the same signatures found on other
pertinent documents (standard/sample signatures),51 which is the same conclusion arrived at by the
NBI.52 The due execution and authenticity of the said deed having been ostensibly established by
the finding that the signatures of petitioners thereon were genuine, the burden was shifted upon the
latter to prove by contrary evidence that the subject properties were not so transferred53 -
especially in light of Nelia's admission of the sale54 in her November 12, 1998 letter to respondent,
as well as respondent's payment of the real property taxes for the same55 - which petitioners,
however, failed to discharge convincingly.

The Court has held in a number of cases that forgery cannot be presumed and must be proved by
clear, positive, and convincing evidence, and the burden of proof lies on the party alleging forgery to
establish his case by a preponderance of evidence, or evidence which is of greater weight or more
convincing than that which is offered in opposition to it.56 In this case, the claimed forgery was ruled
out by a comparison of petitioners' questioned signatures with their standard/sample signatures, but
other than their own declaration that their signatures on the 1991 deed of sale were forged,
petitioners failed to present any evidence to corroborate their claim.

Although the improper notarization of the 1991 deed of sale did not affect the validity of the sale of
the subject properties to respondent, the same, however, rendered the said deed unregistrable,
since notarization is essential to the registrability of deeds and conveyances.57 Bearing in mind that
the legal requirement that the sale of real property must appear in a public instrument is merely a
coercive means granted to the contracting parties to enable them to reciprocally compel the
observance of the prescribed form,58 and considering that the existence of the sale of the subject
properties in respondent's favor had been duly established, the Court upholds the CA's directive for
petitioners to execute a registrable deed of conveyance in respondent's favor within thirty (30) days
from finality of the decision, in accordance with the prescribed form under Articles 135759 and
135860 (1) of the Civil Code. Notably, if petitioners fail to comply with this directive within the said
period, respondent has the option to file the proper motion before the court a quo to issue an order
divesting petitioners' title to the subject properties under the parameters of Section 10 (a),61 Rule
39 of the Rules of Court.

To be sure, the directive to execute a registrable deed of conveyance in respondent's favor - albeit
not specifically prayed for in respondent's Answer with Counterclaim - is but a necessary
consequence of the judgment upholding the validity of the sale to him, and an essential measure to
put in proper place the title to and ownership of the subject properties and to preclude further
contentions thereon. As aptly explained by the CA, "[t]o leave the [1991 deed of sale] as a private
one would not necessarily serve the intent of the country's land registration laws[, and] resorting to
another action merely to compel the [petitioners] to execute a registrable deed of sale would
unnecessarily prolong the resolution of this case, especially when the end goal would be the
same."62 In this relation, case law states that a judgment should be complete by itself; hence, the
courts are to dispose finally of the litigation so as to preclude further litigation between the parties

51
on the same subject matter, thereby avoiding a multiplicity of suits between the parties and their
privies and successors-in-interests.63

As a final note, it must be clarified that while the Court has declared TCT Nos. T-305318, T-305319,
and T-305320 null and void, the duty to process the cancellation of the said titles devolves upon
respondent's heirs. Likewise, it is the latter's duty to register the new deed of sale as herein
compelled so as to secure the issuance of new certificates of title over the subject properties in their
names.

52
Claudel v CA 199 SCRA 113

Facts:

As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from the Bureau of
Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured Transfer Certificate of Title (TCT) No. 7471
issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his name,
the latest Tax Declaration being No. 5795. He dutifully paid the real estate taxes thereon until his
death in 1937.3 Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners,
paid the taxes.

The same piece of land purchased by Cecilio would, however, become the subject of protracted
litigation thirty-nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the children of
Cecilio, namely, Modesto, Loreta, Jose, Benjamin, Pacita, Carmelita, Roberto, Mario, Leonardo,
Nenita, Arsenia Villalon, and Felisa Claudel, and their children and descendants, now the herein
petitioners (hereinafter referred to as HEIRS OF CECILIO), and on the other, the brother and sisters of
Cecilio, namely, Macario, Esperidiona, Raymunda, and Celestina and their children and descendants,
now the herein private respondents (hereinafter referred to as SIBLINGS OF CECILIO). In 1972, the
HEIRS OF CECILIO partitioned this lot among themselves and obtained the corresponding Transfer
Certificates of Title on their shares, as follows:

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil Case No.
5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a
"Complaint for Cancellation of Titles and Reconveyance with Damages," alleging that 46 years earlier,
or sometime in 1930, their parents had purchased from the late Cecilio Claudel several portions of
Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal. However, as
proof of the sale, the SIBLINGS OF CECILIO presented a subdivision plan of the said land, dated
March 25, 1930, indicating the portions allegedly sold to the SIBLINGS OF CECILIO.

As already mentioned, the then Court of First Instance of Rizal, Branch CXI, dismissed the complaint,
disregarding the above sole evidence (subdivision plan) presented by the SIBLINGS OF CECILIO, thus:

Issue:

1. Whether or not a contract of sale of land may be proven orally:

Ruling:

The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may
have been entered into.11 For nowhere does law or jurisprudence prescribe that the contract of sale
be put in writing before such contract can validly cede or transmit rights over a certain real property
between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no

53
means to enforce the contract. Thus the Statute of Frauds was precisely devised to protect the
parties in a contract of sale of real property so that no such contract is enforceable unless certain
requisites, for purposes of proof, are met.

The provisions of the Statute of Frauds pertinent to the present controversy, state:

Art. 1403 (Civil Code). The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases, an agreement hereafter made shall be unenforceable by action unless the same, or some note
or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:

xxx xxx xxx

e) An agreement for the leasing for a longer period than one year, or for the sale of real property or
of an interest therein;

xxx xxx xxx

(Emphasis supplied.)

The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence upon the unassisted memory of witnesses by requiring
certain enumerated contracts and transactions to be evidenced in Writing.12

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence. However
when the Civil Code was re-written in 1949 (to take effect in 1950), the provisions of the Statute of
Frauds were taken out of the Rules of Evidence in order to be included under the title on
Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show
that the Statute of Frauds is also a substantive law.

Therefore, except under the conditions provided by the Statute of Frauds, the existence of the
contract of sale made by Cecilio with his siblings13 can not be proved.

On the second issue, the belated claim of the SIBLINGS OF CECILIO who filed a complaint in court
only in 1976 to enforce a light acquired allegedly as early as 1930, is difficult to comprehend.

The Civil Code states:

Art. 1145. The following actions must be commenced within six years:

(1) Upon an oral contract . . . (Emphasis supplied).

If the parties SIBLINGS OF CECILIO had allegedly derived their right of action from the oral purchase
made by their parents in 1930, then the action filed in 1976 would have clearly prescribed. More
than six years had lapsed.

We do not agree with the parties SIBLINGS OF CECILIO when they reason that an implied trust in
favor of the SIBLINGS OF CECILIO was established in 1972, when the HEIRS OF CECILIO executed a
contract of partition over the said properties.

But as we had pointed out, the law recognizes the superiority of the torrens title.

54
Above all, the torrens title in the possession of the HEIRS OF CECILIO carries more weight as proof of
ownership than the survey or subdivision plan of a parcel of land in the name of SIBLINGS OF
CECILIO.

The Court has invariably upheld the indefeasibility of the torrens title. No possession by any person
of any portion of the land could defeat the title of the registered owners thereof.

Mere registration of the sale is not good enough, good faith must concur with registration. Otherwise
registration becomes an exercise in futility.18

In Amerol v. Bagumbaran,19 we reversed the decision of the trial court. In this case, the title was
wrongfully registered in another person's name. An implied trust was therefore created. This trustee
was compelled by law to reconvey property fraudulently acquired notwithstanding the irrevocability
of the torrens title.20

In the present case, however, the facts belie the claim of ownership.

For several years, when the SIBLINGS OF CECILIO, namely, Macario, Esperidiona Raymunda, and
Celestina were living on the contested premises, they regularly paid a sum of money, designated as
"taxes" at first, to the widow of Cecilio, and later, to his heirs.21 Why their payments were never
directly made to the Municipal Government of Muntinlupa when they were intended as payments
for "taxes" is difficult to square with their claim of ownership. We are rather inclined to consider this
fact as an admission of non-ownership. And when we consider also that the petitioners HEIRS OF
CECILIO had individually paid to the municipal treasury the taxes corresponding to the particular
portions they were occupying,22 we can readily see the superiority of the petitioners' position.

Renato Solema and Decimina Calvez, two of the respondents who derive their right from the
SIBLINGS OF CLAUDEL, bought a portion of the lot from Felisa Claudel, one of the HEIRS OF
CLAUDEL.23 The Calvezes should not be paying for a lot that they already owned and if they did not
acknowledge Felisa as its owner.

In addition, before any of the SIBLINGS OF CECILIO could stay on any of the portions of the property,
they had to ask first the permission of Jose Claudel again, one of the HEIRS OF CECILIO.24 In fact the
only reason why any of the heirs of SIBLINGS OF CECILIO could stay on the lot was because they were
allowed to do so by the HEIRS OF CECILIO.25

In view of the foregoing, we find that the appellate court committed a reversible error in denigrating
the transfer certificates of title of the petitioners to the survey or subdivision plan proffered by the
private respondents. The Court generally recognizes the profundity of conclusions and findings of
facts reached by the trial court and hence sustains them on appeal except for strong and cogent
reasons inasmuch as the trial court is in a better position to examine real evidence and observe the
demeanor of witnesses in a case.

No clear specific contrary evidence was cited by the respondent appellate court to justify the reversal
of the lower court's findings. Thus, in this case, between the factual findings of the trial court and the
appellate court, those of the trial court must prevail over that of the latter.

55
Berman Memorial v Cheng GR No 154630 May 6 2005

Facts:

Francisco Cheng had been a businessman for 50 years, engaged in the purchase and sale of salt,
monggo, soya and other commodities under the business name "Timberland Native Products and
Supplies."2 Among his employees was an accountant.

On January 18, 1994, Conchita Cheng, Francisco Cheng’s wife, died. On January 20, 1994, Cheng
purchased from BMPI a memorial lot, identified as 12-Lot Family Estate, Jr., in the IMP for the
interment of his wife. He and BMPI executed, on the said date, At-Need Purchase Agreement No.
2280 in which he bound and obliged himself to pay its purchase price of P150,000.00,
thus: P50,000.00 as downpayment; P50,000.00 on or before March 7, 1994; and P50,000.00 on or
before April 22, 1994.3 The remains of Conchita were interred in the said lot.

Cheng made a downpayment of P50,000.00 and executed a promissory note, obliging himself to pay
the balance of P100,000.00 on or before the said due date.4 Cheng was able to pay
the P100,000.00 via postdated check,5 less P1,000.00 representing Chong’s cash offer for the
deceased which she and BMPI had agreed would be deducted from her future
commissions.6 However, Cheng remitted to BMPI, on April 22, 1994, the amount of P49,750.00 as
additional payment of the said lot although he had already paid the price in full.7

Sometime in May 1994, Cheng purchased from the BMPI a bigger lot in the IMP where the remains
of his wife would be transferred. He was shown a price list of the lots in the said park, including 24-
Lot Family Estate, Sr., with an at-need price of P350,000.00, inclusive of the cost of perpetual care.
BMPI offered to sell the said lot to Cheng at a pre-need price of P250,000.00, less P110,000.00 of his
payment of P150,000.00 for Lot 12, or in the net price of P140,000.00. He was given a computation
of the price for his consideration and approval. Cheng agreed to purchase 24-Lot Family Estate, Sr. for
the price of P250,000.00, inclusive of P8,100.00 for perpetual care, less P110,000.00 of
the P150,000.00 paid by him for 12-Lot, or the net price of P140,000.00, inclusive of the cost of
perpetual care for the lot. Cheng and BMPI executed, on May 11, 1994, Pre-Need Purchase
Agreement No. 2318 covering the transaction.8 Cheng bound and obliged himself to pay on the
following terms: P50,000.00 as downpayment, the balance payable in 24 monthly installments
of P4,625.00, commencing on May 31, 1994, with 21% interest on the unpaid balance. Cheng
remitted the downpayment of P50,000.00, and was able to pay 17 of the 24 monthly installments
due from June 30, 1994 to November 17, 1995, or in the total amount of P78,625.00.9

Subsequently, Cheng received a statement of account from BMPI showing that he still had a balance
of P32,375.00.10 In a Letter dated January 3, 1996, Cheng, through counsel, informed BMPI that he
had, in fact, made an overpayment of P77,375.00 for the two lots, demanded that the excess
payment be refunded to him, and that the Certificate of Ownership for 24-Lot be issued to him.11 In a
statement of account Cheng prepared, he declared that he had a net balance due from BMPI in the
amount of P57,414.82, inclusive of interest of P12,414.82.12 He stated therein that the cost of the
two lots was P250,000.00, and that he had made a total payment of P327,375.00.

BMPI came out with its statement of account dated March 22, 1996, showing that the purchase price
of 24-Lot was P140,000.0013 and that Cheng had an outstanding account of P33,875.62 for the said
lot. In his Reply-Letter dated April 2, 1996, Cheng insisted that even if the two lots cost P311,000.00,

56
he still had a balance, in his favor, amounting to P26,375.00.14 In an effort to reconcile their
differences, a conference among Cheng, Chong and the accountant of BMPI was held, to no avail.

On July 24, 1996, Cheng filed a Complaint against the IMP, not against BMPI, and Luisa Chong in the
Regional Trial Court (RTC) of Iloilo City, for specific performance with damages. He alleged that the
IMP was a corporation duly organized and existing in the Philippines and that he had purchased 24-
Lot from the IMP for P250,000.00, less the amount of P150,000.00 he had paid for 12-Lot, or a net
price of P100,000.00. He asserted that he had made an overpayment of P77,375.00 for the said lot.
He prayed that, after due proceedings, judgment be rendered in his favor:

Ruling:

The respondent signed the agreement and was furnished with a copy. Indeed, the respondent
confirmed in his complaint that he signed the agreement.

The respondent cannot feign ignorance of the terms of the agreement by alleging that he affixed his
signature on a blank form, and on his barefaced and self-serving pretext that he was suffering from
hernia and had to be operated on in five days.

First. At the bottom of the agreement is the advice given to the respondent: "Please Read This
Contract."46

Second. The respondent had been a businessman for 50 years before he signed the agreement. The
Court cannot believe that he would sign a blank agreement without first reading and reviewing the
terms and conditions contained therein. The respondent is presumed to take ordinary care of his
concerns;47 that the private transaction was fair and regular;48 that the ordinary course of business
has been followed;49 and that the respondent intended the ordinary consequences of his voluntary
act.50

Third. The respondent admitted in his Comment dated February 13, 1997 that he had agreed to the
conversion of 12-Lot to 24-Lot, and that the petitioner furnished him a computation which he
appended to his pleading. The computation shows that the net price of 24-Lot is P140,000.00, thus:

Fourth. The respondent complied with the terms and conditions of the Pre-Need Purchase
Agreement and made the requisite downpayment and the monthly installments for 17 months
without any plaint. He never demanded for a copy of the said agreement, or complained to the
petitioners that the contents thereof did not reflect their arrangement, or demanded that the said
agreement be reformed to reflect their true agreement. It was only when the respondent received
the statement of his account from BMPI sometime in March 1996 that he alleged for the first time
that he had overpaid BMPI for 24-Lot.

Fifth. The respondent failed to adduce evidence that he was suffering from hernia and that he was to
be operated on in five days after signing the May 11, 1994 Pre-Need Purchase Agreement.

Article 1370 of the New Civil Code provides that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall
control. No amount of extrinsic aids are required and no further extraneous sources are necessary in
order to ascertain the parties’ intent, determinable as it is, from the contract itself. The records are
clear that the respondent understood the nature of the contract he entered into.

57
If, indeed, the stipulations as embodied in the aforementioned Pre-Need Purchase Agreement were
not the true intention of the parties, the respondent should have filed the corresponding action for
reformation of the contract. But he did not.

The hornbook rule on interpretation of contracts gives primacy to the intention of the parties, which
is the law among them. Ultimately, their intention is to be deciphered not from the unilateral post
facto assertions of one of the parties, but from the language used in the contract. And when the
terms of the agreement, as expressed in such language, are clear, they are to be understood literally,
just as they appear on the face of the contract.

58
Guzman Bocaling v Bonnevie 206 SCRA 668

Facts:

The subject of the controversy is a parcel of land measuring six hundred (600) square meters, more
or less, with two buildings constructed thereon, belonging to the Intestate Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the administratrix, Africa
Valdez de Reynoso, for a period of one year beginning August 8, 1976, at a monthly rental of
P4,000.00.

The Contract of lease contained the following stipulation:

20. — In case the LESSOR desire or decides to sell the lease property, the LESSEES shall be given a
first priority to purchase the same, all things and considerations being equal.

On November 3, 1976 according to Reynoso, she notified the private respondents by registered mail
that she was selling the leased premises for P600.000.00 less a mortgage loan of P100,000.00, and
was giving them 30 days from receipt of the letter within which to exercise their right of first priority
to purchase the subject property. She said that in the event that they did not exercise the said right,
she would expect them to vacate the property not later then March, 1977.

On January 20, 1977, Reynoso sent another letter to private respondents advising them that in view
of their failure to exercise their right of first priority, she had already sold the property.

Upon receipt of this letter, the private respondents wrote Reynoso informing her that neither of
them had received her letter dated November 3, 1976; that they had advised her agent to inform
them officially should she decide to sell the property so negotiations could be initiated; and that they
were "constrained to refuse (her) request for the termination of the lease.

On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling & Co. The
Contract of Sale provided for immediate payment of P137,500.00 on the purchase price, the balance
of P262,500.00 to be paid only when the premises were vacated.

On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they vacate the
premises within 15 days for their failure to pay the rentals for four months. When they refuse,
Reynoso filed a complaint for ejectment against them which was docketed as Civil Case No. 043851-
CV in the then City Court of Manila.

On September 25, 1979, the parties submitted a Compromise Agreement, which provided inter
alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises subject of the Lease Contract,
Voluntarily and Peacefully not later than October 31, 1979."

This agreement was approved by the City Court and became the basis of its decision. However, as the
private respondents failed to comply with the above-qouted stipulation, Reynoso filed a motion for
execution of the judgment by compromise, which was granted on November 8, 1979.

On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the
decision of the City Court as well as the Compromise Agreement on the sole ground that Reynoso
had not delivered to him the "records of payments and receipts of all rentals by or for the account of
defendant ..." The motion was denied and the case was elevated to the then Court of First Instance.

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That Court remanded the case to the City Court of Manila for trial on the merits after both parties
had agreed to set aside the Compromise Agreement.

On April 29, 1980, while the ejectment case was pending in the City Court, the private respondents
filed an action for annulment of the sale between Reynoso and herein petitioner Guzman, Bocaling &
Co. and cancellation of the transfer certificate of title in the name of the latter. They also asked that
Reynoso be required to sell the property to them under the same terms ands conditions agreed upon
in the Contract of Sale in favor of the petitioner

Ruling:

The petitioner argues that assuming the Contract of Sale to be voidable, only the parties thereto
could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is stressed that private
respondents are strangers to the agreement and therefore have no personality to seek its
annulment.

The respondent court correctly held that the Contract of Sale was not voidable rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors
could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by
the sale of the subject property to the petitioner without recognizing their right of first priority under
the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even
to third persons, to secure reparation for damages caused to them by a contract, even if this should
be valid, by means of the restoration of things to their condition at the moment prior to the
celebration of said contract. 4 It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract may cause, or to protect
some incompatible and preferent right created by the contract. 5 Recission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation
for reasons of equity. 6

It is true that the acquisition by a third person of the property subject of the contract is an obstacle
to the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. 7 However, this rule is not applicable in
the case before us because the petitioner is not considered a third party in relation to the Contract of
Sale nor may its possession of the subject property be regarded as acquired lawfully and in good
faith.

Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that its categorically admitted it
was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property
at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot
deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.

A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim or interest of some other

60
person in the property.8 Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. 9 Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and
such knowledge should have cautioned it to look deeper into the agreement to determine if it
involved stipulations that would prejudice its own interests.

The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease, Assuming this to be true, we nevertherless agree with the observation of the respondent
court that:

If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on
priority right given to the Bonnevies, it had only itself to blame. Having known that the property it
was buying was under lease, it behooved it as a prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled the right
of first priority granted to the Bonnevies by the Contract of Lease. This agreement was set side by the
parties thereto, resulting in the restoration of the original rights of the private respondents under the
Contract of Lease. The Joint Motion to Remand filed by Reynoso and the private respondents clearly
declared inter alia:

61
Equatorial Realty v Mayfair Theatre 264 SCRA 483

Facts:

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.

On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a
portion of Carmelo's property particularly described, to wit:

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter
constructed on the leased property a movie house known as "Maxim Theatre."

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for
the lease of another portion of Carmelo's property, to wit:

for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which reads:

Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M.
Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole
property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.

Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair
replied through a letter stating as follows:

Carmelo did not reply to this letter.

On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in
acquiring not only the leased premises but "the entire building and other improvements if the price
is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second
letter.

Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue
of a Deed of Absolute Sale, for the total sum of P11,300,000.00.

In September 1978, Mayfair instituted the action a quo for specific performance and annulment of
the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and
affirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue
property and offered the same to Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible since the property was not a condominium; and
(b) that the option to purchase invoked by Mayfair is null and void for lack of consideration.
Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of
consideration (sic) and is unenforceable by reason of its impossibility of performance because the
leased premises could not be sold separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of

62
alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed
against co-defendant Carmelo for indemnification in respect of Mayfair's claims.

Ruling:

We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides
for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a
contract of a right of first refusal.

As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal was our characterization of an
option contract as one necessarily involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a predetermined fixed price.

Notably, in one case we held that the lessee loses his right to buy the leased property for a named
price per square meter upon failure to make the purchase within the time specified; 17 in one other
case we freed the landowner from her promise to sell her land if the prospective buyer could raise
P4,500.00 in three weeks because such option was not supported by a distinct consideration; 18 in the
same vein in yet one other case, we also invalidated an instrument entitled, "Option to Purchase" a
parcel of land for the sum of P1,510.00 because of lack of consideration;19 and as an exception to the
doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy
the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration
for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for
that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined
and specified in the option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals21 that:

. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

A contract of sale may be absolute or conditional.

When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the fulfillment of a positive suspensive condition
(normally, the full payment of the purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force. . . .

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be

63
termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price. (1451a).

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.

Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise

(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this stage, may be
withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules generally govern:

(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free
and has the right to withdraw the offer before its acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque,
Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however,
must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith."

(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed period. The option, however, is
an independent contract by itself; and it is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter
may not sue for specific performance on the proposed contract ("object" of the option) since it has
failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the opinion. . .

In the light of the foregoing disquisition and in view of the wording of the questioned provision in the
two lease contracts involved in the instant case, we so hold that no option to purchase in
contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair
under the said lease contracts.

Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal
to Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a
separate consideration for the option, has no applicability in the instant case.

64
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts
which would bring them into the ambit of the usual offer or option requiring an independent
consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a determined
price. It is a separate and distinct contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration.22 In the instant case, the right of
first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed
by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real
estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into
the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the
first crack or the first option to buy the property at the price which Carmelo is willing to accept. It is
not also correct to say that there is no consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes
the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to
lease the premises and to pay the price agreed upon provided the lessor also consents that, should it
sell the leased property, then, Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda. De Quirino vs. Palarca,23 in reciprocal
contract, the obligation or promise of each party is the consideration for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of the right of first refusal to Mayfair.

65
Air France v CA 245 SCRA 485

Facts:

Petitioner Air France filed a complaint for sum of money and damages against private respondents
Multinational Travel Corporation of the Philippines, Fiorello Panopio and Vicky Panopio before the
Regional Trial Court of Manila, Branch 27, then presided over by the Hon. Ricardo Diaz.

After trial, the court rendered judgment on August 31, 1987 in favor of petitioner, ordering private
respondents to pay petitioner, jointly and severally, the amount of P2,518,698.66, with legal rate of
interest per annum from September 22, 1986, until fully paid and P50,000.00 as and for attorney's
fees.

On December 29, 1989, petitioner moved for the issuance of an alias writ of execution on the ground
of unsatisfied judgment. It likewise moved to declare the sale to Iolani Dionisio of a parcel of land
with a house erected thereon in the name of the Multinational Food Corporation and covered by
Transfer Certificate of Title No. 353935 as one in fraud of creditors.

Petitioner, in said motion, stated that private respondent spouses jointly owned 91% of Multinational
Food and Catering Corporation (Multinational Food), other stockholders being: Aldo Glen Panopio
(brother of Fiorello) — 3%; Jaime Dionisio (husband of private respondent Iolani Dionisio) — 3%; and
Marie Rose Ricasa — 3%. Petitioner stated that although Multinational Food was registered with the
Securities and Exchange Corporation, it neither engaged in operations nor held meetings because of
adverse business conditions. The Corporation, through its President Iolani Dionisio, filed a sworn
statement to this effect with the SEC dated July 28, 1986. However, petitioner alleged that despite its
being non-operational, Multinational Food acquired from Ayala Investment and Development
Corporation (Ayala Corporation) the subject property on February 1, 1985.

Petitioner further alleged that private respondent spouses subsequently sold the property to Iolani
Dionisio on April 11, 1985. However, the sale was not registered until one year and nine months later
or at the time petitioner was pursuing the issuance of a writ of attachment.

Petitioner's motion was set for hearing on January 4, 1990, on which date the respondent court
ordered the issuance of an alias writ of execution and on January 8, 1990, the same was issued.

Private respondent spouses filed their opposition thereto on the following grounds:

. . . (a) the respondent court has no jurisdiction because the alleged buyer in the person of Iolani
Dionisio is not a party in the case; (b) that Iolani Dionisio was not served with summons and
therefore to declare the sale to her in fraud of creditors without even jurisdiction would amount to
deprivation of property without due process of law; and (c) that the proper remedy is an
independent civil action where indispensable parties are to be impleaded to afford them to answer
and/or refute charges.

Issue:

The sole issue to be resolved in the instant case is whether or not the Court of Appeals erred in
annulling and setting aside the orders of the trial court.

66
Ruling:

Petitioner's contrary claim that the property belongs to private respondent spouses, if true, requires
a rescissory action which cannot be done in the same case, but through the filing of a separate
action.

Rescission is a relief which the law grants on the premise that the contract is valid for the protection
of one of the contracting parties and third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferential right created by the contract. 4

Under Art. 1381 of the Civil Code, the following contracts are rescissible:

xxx xxx xxx

(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceeding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Rescissible contracts, not being void, they remain legally effective until set aside in a rescissory action
and may convey title. Nor can they be attacked collaterally upon the grounds for rescission in a land
registration proceeding. 5

An action for rescission may not be raised or set up in a summary proceeding through a motion, but
in an independent civil action and only after a full-blown trial. As Article 1383 of the Civil Code
provides:

Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.

Regarding contracts undertaken in fraud of creditors, the existence of the intention to prejudice the
same should be determined either by the presumption established by Article 1387 6 or by the proofs
presented in the trial of the case. 7 In any case, the presumption of fraud established by this article is
not conclusive, and may be rebutted by satisfactory and convincing evidence. 8 To repeat, an
independent action is necessary to prove that the contract is rescissible.

Under Article 1389 of the Civil Code, an "accion pauliana," 9 the action to rescind contracts made in
favor of creditors, must be commenced within four years.

Clearly, the rights and defenses which the parties in a rescissible contract may raise or set up cannot
be properly ventilated in a motion but only in a full trial.

67