ISSUE
RS. Tomas v Rizal Cement (2012)
Peralta, J.
Re: Obligatory force of contracts
DOCTRINE: For petitioner, the contract entered into may have turned out to be an
unwise investment, but there is no one to blame but petitioner for plunging into an
undertaking without fully studying it in its entirety.
FACTS
The case stemmed from an action for sum of money or damages arising from breach
of contract. The contract involved in this case refers to the rewinding and conversion
of one unit of transformer to be installed and energized to supply respondents
power requirements. This project was embodied in three (3) job orders, all of which
were awarded to petitioner who represented itself to be capable, competent, and
duly licensed to handle the projects. As agreed upon by the parties, the projects
were to be completed within 120 days from the effectivity of the contract.
Petitioner, however, failed to complete the projects within the agreed period
allegedly because of misrepresentation and fraud committed by respondent as to
the true nature of the subject transformer. Petitioner sent three letters. The first
letter requests for extension due to the availability of materials (copper sheets),
which petitioner still has to import. Second letter requests for another extension for
the completion of the transformer. In the third letter, petitioner raised that
transformer needs more repair than expected. While petitioner wanted to complete
the project, respondent expressed its desire to terminate the contract plus claimed
for the refund. Respondent contracted Geostar to complete the project commenced
by Petitioner.
The trial court found that respondent indeed failed to inform petitioner of the true
condition of the transformer which amounted to fraud thereby justifying the latters
failure to complete the projects. The CA, however, had a different conclusion and
decided in favor of respondent.
Petitioner tried to exempt itself from the consequences of said breach by passing the
fault to respondent. It explained that its failure to complete the project was due to
the misrepresentation of the respondent. It claimed that more time and money were
needed, because the condition of the subject transformer was worse than the
representations of respondent.
Whether petitioners defense of misrepresentation and need for more time and
money tenable?
HELD: NO.
There was not only a delay but a failure to complete the projects as stated in the
contract; that petitioner could not complete the projects because it did not have the
materials needed; and that it is in need of financial assistance.
As the Court sees it, the bid submitted by petitioner may have been sufficient to be
declared the winner but it failed to anticipate all expenses necessary to complete
the projects. When it incurred expenses it failed to foresee, it began requesting for
price adjustment to cover the cost of high voltage bushing and difference in cost of
copper sheet and rectangular wire. However, the scope of work presented by
respondent specifically stated that the wires to be used shall be pure copper and
that there was a need to supply new bushings for the complete rewinding and
conversion of 3125 KVA to 4 MVA Transformer. In other words, petitioner was aware
that there was a need for complete replacement of windings to copper and of
secondary bushings. It is, therefore, improper for petitioner to ask for additional
amount to answer for the expenses that were already part and parcel of the
undertaking it was bound to perform. For petitioner, the contract entered into may
have turned out to be an unwise investment, but there is no one to blame but
petitioner for plunging into an undertaking without fully studying it in its entirety.
The Court likewise notes that petitioner repeatedly asked for extension allegedly
because it needed to import the materials and that the same could not be delivered
on time. Petitioner also repeatedly requested that respondent make a direct
payment to the suppliers notwithstanding the fact that it contracted with
respondent for the supply of labor, materials, and technical supervision. It is,
therefore, expected that petitioner would be responsible in paying its suppliers
because respondent is not privy to their (petitioner and its suppliers) contract. This
is especially true in this case since respondent had already made advance payments
to petitioner. It appears, therefore, that in offering its bid, the source and cost of
materials were not seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the contract that is why
it asked for financial assistance from respondent. This is contrary to petitioners
representation that it was capable, competent, and duly licensed to handle the
projects.
This lack of evidence, coupled with petitioners failure to raise the same at the
earliest opportunity, belies petitioners claim that it could not complete the projects
because the subject transformer could no longer be repaired.
Assuming for the sake of argument that the subject transformer was indeed in a
damaged condition even before the bidding which makes it impossible for petitioner
to perform its obligations under the contract, we also agree with the CA that
petitioner failed to prove that respondent was guilty of bad faith, fraud, deceit or
misrepresentation.
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, a breach
of a known duty through some motive or interest or ill will that partakes of the
nature of fraud. Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with an evil
or devious purpose. Deceit exists where the party, with intent to deceive, conceals
or omits to state material facts and, by reason of such omission or concealment, the
other party was induced to give consent that would not otherwise have been given.
These are allegations of fact that demand clear and convincing proof. They are
serious accusations that can be so conveniently and casually invoked, and that is why
they are never presumed. In this case, the evidence presented is insufficient to prove
that respondent acted in bad faith or fraudulently in dealing with petitioner.
In sum, the evidence presented by the parties lead to the following conclusions:
(1) that the projects were not completed by petitioner;
(2) that petitioner was given the opportunity to inspect the subject
transformer;
(3) that petitioner failed to thoroughly study the entirety of the projects
before it offered its bid;
(4) that petitioner failed to complete the projects because of the unavailability
of the required materials and that petitioner needed financial assistance;
(5) that the evidence presented by petitioner were inadequate to prove that
the subject transformer could no longer be repaired; and
(6) that there was no evidence to show that respondent was in bad faith,
acted fraudulently, or guilty of deceit and misrepresentation in dealing
with petitioner.
G. R. No. 194515 SPOUSES OSCAR AND GINA GIRONELLA, Petitioners, -versus-
PHILIPPINE NATIONAL BANK, Respondent.
September 16, 2015
FACTS: Spouses Oscar and Gina Gironella obtained two (2) loans from Commented [KMM1]: Lets use their full names when
PNB dated 11 November 1991 and 16 January 1992 in the amount of Php mentioning them the first time.
7, 500, 000.00 and Php 2, 000, 000.00 for the construction of Dagupan
Village Hotell and Sports Complex. The loans were co-terminus, both Commented [KMM2R1]: Pede naman sigurong wag na
payable on installment and secured by the same real estate mortgage over kasi digest na naman to
a parcel of land covered by TCT No. 56059 in favor of PNB.
On May 1992 the spouses applied another loan with PNB amounting Php
5, 800, 000.00 for the construction of the restaurant and purchase of
generator set.
The Spouses Gironella believed that the third loan would be approved and Commented [KMM3]: PNB thought that the 5.8M the
that they used their generated income for the construction while the loan pending (third) loan will be approved? Did I understand it
is still pending, resulting to default of their previous two (2) loans. correctly? Lets split the sentence into two and add in more
The Spouses proposed a restructuring of the Php 5, 800, 000.00 and details regarding this.
maintain payment for the interests of the previous loans.
By the year 2000 the PNB wrote a letter to the Spouses Gironella for the Commented [KMM4R3]: Pnb reps MADE THEM believed
restructuring of the said loan and that it will be subject for evaluation and
approval of the higher management. Bagohin ko nalang
On 7 February 2000, the Spouses Gironella gave a qualified acceptance of
PNBs proposed restructuring, specifically referring to specific terms in the
25 January 2000 proposal of PNB. However PNB rejected the counter offer
of the Spouses Gironella and later on filed for Extra-Judicial Foreclosure of
the mortgage property. Commented [KMM5]: Im confused. This is about the
The Spouses file a Complaint before the RTC with prayer for issuance of a third loan of the spouses? They were trying to negotiate and
Temporary Restraining Order (TRO) and preliminary injunction to enjoin they never had an agreement about the third loan?
enforcement of the original credit agreements, and security therefor,
between the parties. The RTC granted the petition. PNB foreclosed the properties because they didnt approve
PNB appealed to the CA questioning the trial courts decision. CA ruled in of the counter offer of the spouses?
favor of PNB, the appellate court found that there was no final agreement
reached by the parties where the offer was certain and acceptance thereof Commented [KMM6R5]: Thats the issue they were on
by the other party was absolute. The appellate court held that, in this case, the negotiation stage palang. And PNB did not accept
a qualified acceptance equated to a counter-offer and, at that point, there
was no absolute and unqualified acceptance which is identical in all
respects with that of the offer so as to produce consent or meeting of the
minds.
ISSUE: WHETHER OR NOT there is fraud or gross negligence when the
PNB did not approved their loan application by giving them false hope or
assurances.
 WHETHER OR NOT there is a Perfected Contract or
Partial Restructuring of Loan.
HELD: The Spouses Gironella claim fraud and gross negligence, as
plaintiffs, the Spouses Gironella had the duty, the burden of proof, to
present evidence, required by law, on the facts in issue necessary to
establish their claim.
The foregoing statement fails to take into consideration the three (3)
distinct stages of a contract: (1) preparation or negotiation, (2) perfection,
and finally, (3) consummation. Necessarily, the Spouses Gironella as
debtors applying for an additional loan, ought to participate in the
negotiations thereof and await PNBs assessment and processing of their
additional loan application.
A contract is perfected by mere consent. In turn, consent is manifested by
the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the
acceptance seasonable and absolute. If qualified, the acceptance would
merely constitute a counter-offer as what occurred in this case.
To reach that moment of perfection, the parties must agree on the same
thing in the same sense, so that their minds meet as to all the terms. The
minds of parties must meet at every point; nothing can be left open for
further arrangement. So long as there is any uncertainty or indefiniteness,
or future negotiations or considerations to be had between the parties,
there is not a completed contract, and in fact, there is no contract at all.
The Spouses Gironellas payments under its original loan cannot be
considered as partial execution of the proposed restructuring of loan
agreement.
The letter dated 20 January 2000 which qualifiedly accepted by the
Spouses on 7 February 2000 and constituted a counter-offer in which PNB
ultimately rejected on 8 March 2000, clearly show that the parties never
passed the negotiation stage. There was no meeting of the minds on the
restructuring of the loans. Thus, the Spouses Gironella's original Php
9,500,000.00 loan agreement subsists.
The SC affirmed the CAs decision and held that PNB is not liable either for
fraud, gross negligence or abuse of right. PNB did not breach any
agreement, the restructured loan was never perfected and PNB was not
liable to pay the spouses any forms of damages.
Rosenstock v Burke
Essential elements of a contract
FACTS: Edwin Burke owned a motor yacht which he acquired for the purpose of
selling. Plaintiff H. W. Elser began negotiations with Burke for the purchase of the
yacht. This yacht was mortgaged to the Asia Banking Corporation to secure the
payment of a debt which was due and unpaid since a year prior thereto, contracted
by Burke in favor of said bank of which Avery was then the manager. The plan of
Elser was to organize a yacht club and sell it afterwards the yacht. Burke obtained
from Elser an option in writing in the following terms: For the purpose of organizing
a yacht club, I am confirming my verbal offer to you of the motor yacht, at P120,000.
Elser proposed to Burke to make a voyage on board the yacht to the south, with
prominent businessmen for the purpose of making an advantageous sale. As the
yacht needed some repairs, and as Burke said that he had no funds to make said
repairs, Esler paid almost all their amount. It has been stipulated that Elser was not
to pay anything for the use of the yacht. Once the yacht was repaired, Elser gave
receptions on board, and on March 6, 1922, made his pleasure voyage to the south,
coming back on March 23. Elser never accepted the offer of Burke for the purchase
of the yacht contained in the letter of option of February 12, 1922. Elser believed
that it was convenient to replace the engine of the yacht with a new one which would
cost P20,000. Elser had negotiated with Avery for another loan of P20,000 with
which to purchase this new engine. On March 31, Elser informed Burke that after he
had tried to obtain from Avery said new loan, and that he was not disposed to
purchase the vessel for more than P70,000, Avery had told him that he was not in
position to give one cent more. Elser suggested to Burke that he should speak with
Avery. Burke, after an interview with Avery, answered Elser that he had arrived at an
agreement with Avery about the sale of the yacht to Elser for P80,000, the yacht to
be mortgaged to secure payment thereof. On April 1, Elser informed Burke that he
was not inclined to accept this proposition. On the morning of April 3, Burke called
Elser to speak with him about the matter and as a result of the interview held
between them, Elser in the presence of Burke wrote a letter addressed to the latter
which is literally as follows: xxx In connection with the yacht, I am in position and
am willing to entertain the purchase of it under the following terms: xxx
Burke took this letter to the Asia Banking Corporation. Both Burke and Avery signed
at the bottom of the letter of Elser. On April 5, Elser sent Burke another letter, telling
him that in view of the attitude of Avery as to the loan of P20,000 in connection with
the installation of a new engine in the yacht, it was impossible for him to take charge
of the boat and he made delivery thereof to Burke. On April 8, Burke answered Elser
that as he had accepted, with the consent of the Asia Banking, through Avery, the
offer for the purchase of the yacht made by Elser in his April 3 letter, he made
demand on him for the performance thereof.
Elser brings this action against Burke to recover the value of the repairs made on the
yacht. Burke alleges that the agreement he had with Elser about these repairs was
that the latter was to pay for them for his own account in exchange of the gratuitous
use of the yacht. Alleging that Elser purchased the vessel in accordance with his letter
of April 3, Burke prays as a cross-complaint that Elser be compelled to comply with
the terms of this contract and to pay damages.
ISSUE: Whether April 3, 1922 letter was a definite offer to purchase resulting in a
perfected contract.
HELD: No. This letter begins as follows: "In connection with the yacht Bronzewing, I
am in position and am willing to entertain the purchase of it under the following
terms . . . ." The whole question is reduced to determining what the intention of the
plaintiff was in using that language. To convey the idea of a resolution to purchase,
a man of ordinary intelligence and common culture would use these clear and simple
words, I offer to purchase, I want to purchase, I am in position to purchase. And the
stronger is the reason why the plaintiff should have expressed his intention in the
same way, because, according to the defendant, he was a prosperous and
progressive merchant. It must be presumed that a man in his transactions in good
faith uses the best means of expressing his mind that his intelligence and culture
permit so as to convey and exteriorize his will faithfully and unequivocally. But the
plaintiff instead of using in his letter the expression, I want to purchase, I offer to
purchase, I am in position to purchase, or other similar language of easy and
unequivocal meaning, used this other, I am in position and am willing to entertain
the purchase of the yacht. The word "entertain" applied to an act does not mean the
resolution to perform said act, but simply a position to deliberate for deciding to
perform or not to perform said act. Taking into account only the literal and technical
meaning of the word "entertain," it seems to us clear that the letter of the plaintiff
cannot be interpreted as a definite offer to purchase the yacht, but simply a position
to deliberate whether or not he would purchase the yacht. It was but a mere
invitation to a proposal being made to him, which might be accepted by him or not.
Furthermore there are other circumstances which show that in writing this letter it
was really not the intention of the plaintiff to make a definite offer. The plaintiff
never thought of acquiring the yacht for his personal use, but for the purpose of
selling it to another or to acquire it for another, thereby obtaining some gain from
the transaction, and it can be said that the only thing the plaintiff wanted in
connection with this yacht was that the defendant should procure its sale, naturally
with some profit for himself. For this reason the original idea of the plaintiff was to
organize a yacht club that would afterwards acquire the yacht through him, realizing
some gain from the sale. This accounts for the fact that the plaintiff was not in a
position to make a definite offer to purchase, he being sure to be able to resell the
yacht to another, and this explains why he did not say in his letter of April 3 that he
was in position to purchase the yacht, but only to entertain this purchase.
On the other hand, the plaintiff thought it necessary to replace the engine of the
yacht with a new one and has been negotiating with Avery a loan to make the
replacement. When the plaintiff wrote his April 3 letter, he knew that Avery was not
in position to grant this loan. According to this, the resolution of the plaintiff to
acquire the yacht depended upon him being able to replace the engine, and this, in
turn, depended upon the plaintiff being successful in obtaining the sum that the new
engine was to cost. This accounts also for the fact that the plaintiff was not in
position to make a definite offer.
But above all, there is in the record positive proof that in writing this letter of April
3, the plaintiff had no intention to make thereby a definite offer. This letter was
written by his stenographer in his office and in the presence of the defendant who
has been there precisely for the purpose of speaking about this purchase. According
to the plaintiff, when he was dictating that part wherein he said that he was in
position to entertain the purchase of the yacht, the defendant interrupted him and
suggested the elimination of the word entertain and the substitution therefor of a
definite offer, but after a discussion between them, during which the plaintiff clearly
said that he was not in position to make a definite offer, the word entertain now
appearing in the letter was preserved. The stenographer and another employee of
the plaintiff, who were present, corroborate this statement of the plaintiff.
The lower court seems to have been impressed by the consideration that it was
anomalous for the plaintiff to write that letter if his purpose was only to indicate to
the defendant that he wanted the latter to make a proposal which the plaintiff might
reject or accept. We see nothing anomalous in this. A proposition may be acceptable
in itself, but its acceptance may depend on other circumstances; thus one may say
that a determinate proposition is acceptable, and yet he may not be in a position to
accept the same at the moment.
The letter of the plaintiff not containing a definite offer but a mere invitation to an
offer being made to him, the acceptance of the defendant placed at the bottom of
this letter has not other meaning than that of accepting the proposition to make this
offer, as must have been understood by the plaintiff.
Sanchez v Rigos (1972)
45 SCRA 368
Topic: Elements of a Contract; Essential; Acceptance
Doctrine:
FACTS:
In an instrument entitled "Option to Purchase," executed on April 3, 1961,
defendant-appellant Severina Rigos "agreed, promised and committed ... to sell" to
plaintiff-appellee Nicolas Sanchez for the sum of P1,510.00 within two (2) years from
said date, a parcel of land situated in the barrios of Abar and Sibot, San Jose, Nueva
Ecija. It was agreed that said option shall be deemed "terminated and elapsed," if
Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI of
Nueva Ecija and filed an action for specific performance and damages against Rigos
for the latters refusal to accept several tenders of payment that Sanchez made to
purchase the subject land.
Defendant Rigos contended that the contract between them was only a unilateral
promise to sell, and the same being unsupported by any valuable consideration, by
force of the New Civil Code, is null and void." Plaintiff Sanchez, on the other hand,
alleged in his compliant that, by virtue of the option under consideration, "defendant
agreed and committed to sell" and "the plaintiff agreed and committed to buy" the
land described in the option. The lower court rendered judgment in favor of Sanchez
and ordered Rigos to accept the sum Sanchez judicially consigned, and to execute in
his favor the requisite deed of conveyance. The Court of Appeals certified the case
at bar to the Supreme Court for it involves a question purely of law.
ISSUE: Whether there was a contract to buy and sell between the parties or only a
mere unilateral promise to sell
HELD:
The Court said that the plaintiff (Sanchez) is his complaint alleges that under the
Annex A (copy of the contract), the defendant agreed and committed to sell and
the plaintiff agreed and committed to buy said property making it reciprocally
demandable pursuant to the first paragraph of Art. 1479.
The Court debunked this theory by saying that the option did not impose upon the
plaintiff the obligation to purchase the property. It was not a contract to buy and
sell, it clearly states that there is a commitment to sell the land for P1510.00 but no
indication of a consideration distinct from the price stipulated for the sale of the
land.
The Court said that the LC presumed the existence of this consideration
using NCC 1354:
NCC 1354: Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the contrary. (1277)
However the Court said that, 1354 pertains to contracts in general, while 1479 refer
to sales, or more specifically, to an accepted unilateral promise to buy or to sell.
With 1479 controlling the case at bar
In order that said unilateral promise be binding upon the promisor, Art. 1479
requires the concurrence of a condition and that the promise be supported by a
consideration distinct from the price, which is absent in this case.
Defendant has explicitly pleaded the absence of this consideration and the plaintiff
(Sanchez), by joining in the petition for the judgment of the pleadings, has impliedly
admitted the truth of her defense, as held in Bauermann vs. Casas: One who prays
for judgment on the pleadings without offering proof as to the truth of his own
allegations, and without giving the opposing party an opportunity to introduce
evidence, must be understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings.
The decision cited a case:
Southwestern Sugar Molasses Co. vs. Atlantic Gulf and Pacific Co.:
In this case, the appellants main contention is that the option granted to the
appellee to sell to him/her Barge no. 10 has no legal effect bec. it is not supported
by any consideration and invokes NCC 1479. On the other hand, appellee maintains
and invokes NCC 1324: When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn any time before acceptance by communicating
such withdrawal, except when the option is founded upon consideration as
something paid or promised.
Decision: SC said that while it is true that under article 1324 of the new Civil
Code, the general rule regarding offer and acceptance is that, when the
offerer gives to the offeree a certain period to accept, "the offer may be
withdrawn at any time before acceptance" except when the option is
founded upon consideration, but this general rule must be interpreted as
 modified by the provision of article 1479 above referred to, which applies
to "a promise to buy and sell" specifically. As already stated, this rule
requires that a promise to sell to be valid must be supported by a
consideration distinct from the price.
The Court cited another case, however, which is the justification for their ruling in
favour of Sanchez and said that there is no distinction between 1324 and 1479.
Atkins, Kroll and Co., Inc. v. Cua Hian Tek:
Decision: An option is unilateral: a promise to sell at the price fixed
whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy
or not to buy later.
In this case, however, upon accepting herein petitioner's offer a bilateral promise to
sell and to buy ensued, and the respondent ipso facto assumed the obligation of a
purchaser. He did not just get the right subsequently to buy or not to buy. It was not
a mere option then; it was a bilateral contract of sale.
IN OTHER WORDS, since there is no valid consideration, offerer is not bound to
promise and may widthraw it. However, pending notice of his withdrawal, if his offer
is ACCEPTED, the contract of sale has been PERFECTED. Moreover, the decision in
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an
exception to the former, and exceptions are not favored, unless the intention to the
contrary is clear, and it is not so, insofar as said two (2) articles are concerned.
What is more, the reference, in both the second paragraph of Art. 1479 and Art.
1324, to an option or promise supported by or founded upon a consideration,
strongly suggests that the two (2) provisions intended to enforce or implement the
same principle.
Decision in Southwestern is abandoned, Atkins is applied.
Capalla v. COMELEC (2012)
Topic: Characteristics of Contracts; Autonomy of Will
DOCTRINE: Sereno, concurring: In the construction of an instrument, the intention of
the parties is to be pursued. The true agreement of the parties may be proved, as
against the terms and stipulations appearing in a written contract where a mistake
or imperfection of the writing, or its failure to express the true intent and agreement
of the parties, is put in issue by the pleadings, or there is an intrinsic ambiguity in the
writing. When the true intent and agreement of the parties is established, it must be
given effect and prevail over the bare words of the written contract.
FACTS: Pursuant to its authority to use an Automated Election System (AES), the
COMELEC posted and published an invitation to apply for eligibility and to bid for the
2010 Poll Automation Project. COMELEC awarded the contract for the project to
respondent Smartmatic-TIM. Thereafter, COMELEC and Smartmatic-TIM entered
into a Contract for the Provision of an Automated Election System for the May 10,
2010 Synchronized National and Local Elections (AES Contract, for brevity). The
contract between the COMELEC and Smartmatic-TIM was one of lease of the AES
with option to purchase (OTP) the goods listed in the contract. In said contract, the
COMELEC was given until December 31, 2010 within which to exercise the option. In
a letter, Smartmatic-TIM, through its Chairman Cesar Flores, proposed a temporary
extension of the option period to buy the PCOS machines until March 31, 2011. The
COMELEC did not exercise the option within the extended period. Several extensions
were given for the COMELEC to exercise the OTP until its final extension on March
31, 2012.
On March 29, 2012, COMELEC issued a resolution resolving to accept Smartmatic-
TIMs offer to extend the period to exercise the OTP until March 31, 2012.
Archbishop Capalla, et al. thus assailed the validity and constitutionality of the
COMELEC Resolutions for the purchase of the subject PCOS machines as well as the
Extension Agreement and the Deed of Sale covering said goods mainly on the ground
that the option period provided for in the AES contract between the COMELEC and
Smartmatic-TIM had already lapsed and, thus, could no longer be extended, such
extension being prohibited by the contract.
ISSUE: Whether or not the unilateral extension of the option period which
Smartmatic-TIM granted to COMELEC and which the latter accepted constitutes
circumvention of the law on public bidding.
HELD: NO. It is a basic rule in the interpretation of contracts that an instrument must
be construed so as to give effect to all the provisions of the contract. In essence, the
contract must be read and taken as a whole. While the contract indeed specifically
required the COMELEC to notify Smartmatic-TIM of its OTP the subject goods until
December 31, 2010, a reading of the other provisions of the AES contract would
show that the parties are given the right to amend the contract which may include
the period within which to exercise the option. There is, likewise, no prohibition on
the extension of the period, provided that the contract is still effective.
Considering, however, that the AES contract is not an ordinary contract as it involves
procurement by a government agency, the rights and obligations of the parties are
governed not only by the Civil Code but also by RA 9184. In this jurisdiction, public
bidding is the established procedure in the grant of government contracts. The
award of public contracts, through public bidding, is a matter of public policy. The
parties are, therefore, not at full liberty to amend or modify the provisions of the
contract bidded upon.
A winning bidder is not precluded from modifying or amending certain provisions of
the contract bidded upon. However, such changes must not constitute substantial
or material amendments that would alter the basic parameters of the contract and
would constitute a denial to the other bidders of the opportunity to bid on the same
terms. The determination of whether or not a modification or amendment of a
contract bidded out constitutes a substantial amendment rests on whether the
contract, when taken as a whole, would contain substantially different terms and
conditions that would have the effect of altering the technical and/or financial
proposals previously submitted by the other bidders. The modifications in the
contract executed between the government and the winning bidder must be such as
to render the executed contract to be an entirely different contract from the one
bidded upon.
Smartmatic-TIM was not granted additional right that was not previously available
to the other bidders. Admittedly, the AES contract was awarded to Smartmatic-TIM
after compliance with all the requirements of a competitive public bidding. Although
the AES contract was amended after the award of the contract to Smartmatic-TIM,
the amendment only pertains to the period within which the COMELEC could
exercise the option because of its failure to exercise the same prior to the deadline
originally agreed upon by the parties.
Sereno, Concurring
The Treatment of Options, Extensions of Time for their
Exercise, and their Revival Under Contract Law
Had the parties been both private entities, then there would have been
either no legal dispute on the validity of the exercise of an option that was renewed
after its expiry, or, the legal dispute would have been quite easy to resolve. This is
because our law on contracts is quite straightforward on this matter. It is our
government procurement laws and regulations that have complicated the legal
issues we need to resolve.
First, the Civil Code is quite emphatic about respecting the autonomy of
the wills of the parties:
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
Among the stipulations that the parties can agree on is an option granted
by one party in favor of the other (Art. 1324, Civil Code). Samples of such
contractually created options can be found in some articles of the Civil Code, such
as: (a) an option to buy, which is embedded in a lease of personal property (Art.
1485) and (b) sales on consignment in which the buyer has the option to return the
goods or pay the price thereof (Art. 1502).
Second. A contract when validly executed has the legal effect of binding
the party who has undertaken to give something or to render some service (Art.
1305). By binding, we mean that a legally enforceable right is created in favor of
the person who is to receive the thing or the service. This right has the force of
law between the contracting parties (Art. 1159, Civil Code).
Conversely, if the person who possesses the right to demand the
performance of the undertaking to give or to render a service, can demand the
performance thereof, he or she can also waive the same. This waiver has the effect
of extinguishing the obligation. A waiver is the abandonment or voluntary forfeiture
of a right. It operates in the same manner as a condonation or remission of a debt
under Articles 1231(3), and 1270-1274 of the Civil Code.
Examples of valid waivers can be found in the following articles of the Civil
Code: (a) a waiver evidenced by the delivery of a document evidencing a credit (Art.
1271); (b) the waiver of a right to assail a voidable contract through an act ratifying
the contract (Art. 1393); (c) the waiver of a condition in a sales contract (Art. 1545).
Third, if an option is conditioned on its exercise within a period, then this
condition that consists in a period or a deadline for its exercise can itself be
waived. In a contract of sale, for example, where the obligation of either party . . .
is subject to any condition which is not performed, such party may refuse to proceed
with the contract or he may waive performance of the condition. (Art. 1545, Civil
Code)
 Fourth, this waiver of a condition that consists in a deadline can be made
by the party in whose favor the deadline was constituted. Under Article 1196 of the
Civil Code, [w]henever in an obligation a period is designated, it is presumed to have
been established for the benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances, it should appear that the period has been
established in favor of one or of the other. An option that expires on a fixed date is
an obligation with a resolutory period that take[s] effect at once, but terminate[s]
upon arrival of the day certain. An offeror can also always withdraw an option
under Article 1324 of the Civil Code, with the converse implication that he or she can
always extend the period for the acceptance of the offer.
Thus, an option to purchase exercisable within a fixed period, embedded
in a lease contract, expires after that fixed period, because the lapse thereof is a
resolutory condition that extinguishes the option to purchase. Both parties can
agree to waive the resolutory condition, however, in the form of an extension of
the period for performance, under the very clear provisions of the Civil Code. This
accounts for the commonness of renewed or revived options in private commercial
agreements, such as leases, sales, joint ventures, intellectual property rights
contracts, etc.
The legal disputes that will arise in these situations would be easy to
resolve. Because both parties agreed to revive or renew an expired option, their
agreement binds both of them; and neither can assail the agreement simply on the
ground that the original option period has expired, and this extension agreement has
the force of law between them.
That the parties have the ability to revive dead or terminated contracts is
so basic a rule that it has consistently and implicitly been understood to be so by this
Court. In two injunction cases, the Court restated its understanding that a dead or
terminated contract can always be revived or renewed by mutual agreement of
the parties.
The termination of a contract is not like the death of a natural being. It is
the will and the mutual understanding of the parties, rather than the form and
solemnities, that prevail in contract interpretation. Thus, a contract that on its face
expires can, by the mutual contracting action of the parties, even be pronounced by
the court to be continuing simply because the parties consider it to be so
continuing. As the eminent scholar on contracts put it:
In the construction of an instrument, the intention of
the parties is to be pursued. The true agreement of the parties
may be proved, as against the terms and stipulations appearing
in a written contract where a mistake or imperfection of the
writing, or its failure to express the true intent and agreement of
the parties, is put in issue by the pleadings, or there is an intrinsic
ambiguity in the writing. When the true intent and agreement of
the parties is established, it must be given effect and prevail over
the bare words of the written contract.
Malbarosa v CA (2003)
G.R. No. 125761
FACTS:
Here in petitioner was the president and general manager of Philtectic Corp., a
subsidiary of respondent SEADC. Being an officer, he was issued a car and
membership in the Architectural Center. One day he intimidated with the vice-
chairman of the BoD of respondent his desire to retire and he requested that his
incentive compensation be paid to him as president of Philtectic. He then tendered
his resignation to said VP. One of the officer met with petitioner and informed him
that he will get roughly around P395k.
Following his resignation, the VP sent a letter-offer to petitioner stating therein
acceptance of petitioners resignation and advised him that he is entitled to P251k
as his incentive compensation. In the same letter, the VP proposed the satisfaction
of his incentive by giving him the car the company issued and the membership in the
Architectural Center will be transferred to him, instead of cash. Petitioner was
required by respondent through the VP to affix his signature in the letter if he was
agreeable to the proposal. The letter was given to the petitioner by the officer who
told him that he was supposed to get P395k.Petitioner was dismayed when he
received the letter-offer and refused to sign it as required by respondent if he was
agreeable to it.
Two weeks later, respondent company demanded the return the car and turn over
the membership in the Architectural Center. Petitioner wrote the counsel of
respondent telling him that he cannot comply with the demand since he already
accepted the offer fourteen (14) days after it was made. In his letter, he enclosed a
Xerox of the original with his affixed signature as required.
With his refusal, respondent instituted an action for recovery with replevin. In his
Answer to the complaint, the petitioner, as defendant therein, alleged that he had
already agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the
respondent, the plaintiff therein, and had notified the said plaintiff of his acceptance;
hence, he had the right to the possession of the car.
After the trial, judgment was rendered against petitioner. The trial court opined that
there existed no perfected contract between the petitioner and the respondent on
the latters March 14, 1990 Letter-offer for failure of the petitioner to effectively
notify the respondent of his acceptance of said letter-offer before the respondent
withdrew the same. He appealed to the CA which affirmed the decision of the trial
court. Hence, this present appeal.
ISSUES: Whether there was a valid acceptance on his part of the March 14, 1990
Letter-offer of the respondent?
Whether there was an effective withdrawal by the respondent of said letter-offer?
HELD
No. 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. To produce a
contract, there must be acceptance of the offer which may be express or implied but
must not qualify the terms of the offer. The acceptance must be absolute,
unconditional and without variance of any sort from the offer. The acceptance of an
offer must be made known to the offeror. Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no real concurrence of
offer and acceptance.
The offeror may withdraw its offer and revoke the same before acceptance thereof
by the offeree. The contract is perfected only from the time an acceptance of an
offer is made known to the offeror. If an offeror prescribes the exclusive manner in
which acceptance of his offer shall be indicated by the offeree, an acceptance of the
offer in the manner prescribed will bind the offeror. On the other hand, an attempt
on the part of the offeree to accept the offer in a different manner does not bind the
offeror as the absence of the meeting of the minds on the altered type of
acceptance.
An offer made inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected
only upon knowledge by the offeror of the express acceptance by the offeree of the
offer. An acceptance which is not made in the manner prescribed by the offeror is
not effective but constitutes a counter-offer which the offeror may accept or reject.
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.
In the case at bar, the respondent made its offer through its VP. On March 16, the
officer handed over the original letter-offer to petitioner. The respondent required
the petitioner to accept by affixing his signature and the date in the letter offer, thus
foreclosing an implied acceptance or any other mode of acceptance. And it is for a
fact that the petitioner did not accept or reject the offer for he needed time to decide
whether to accept or reject. 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
respondents 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.
On the second issue. It is necessarily so because there was no need for the
respondent to withdraw its offer because the petitioner had already rejected the
respondents 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.
Traders Royal Bank v Cuison (2009)
Brion, J.
Re: Acceptance; Contracts
DOCTRINE The concurrence of the offer and acceptance is vital to the birth and the
perfection of a contract. The clear and neat principle is that the offer must be certain
and definite with respect to the cause or consideration and object of the proposed
contract, while the acceptance of this offer express or implied must be
unmistakable, unqualified, and identical in all respects to the offer. The required
concurrence, however, may not always be immediately clear and may have to be
read from the attendant circumstances; in fact, a binding contract may exist between
the parties whose minds have met, although they did not affix their signatures to any
written document.
FACTS
CLCI, through its president Cuison, obtained 2 loans from Trader Royal Bank. These
loans were secured with a real estate mortgage. CLCI defaulted, prompting the bank
to extra judicially foreclose the property. The bank was the highest bidder. In a series
of written communications between CLCI and the bank, CLCI manifested its intention
to restructure its loan obligations and to repurchase the subject property. Mrs.
Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the
banks Officer-in-Charge, a letter indicating her offered terms of repurchase.
CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3,
1986). The bank received and regarded these amounts as earnest money for the
repurchase of the subject property. On October 20, 1986, the bank sent Atty.
Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a
letter informing CLCI of the banks board of directors resolution (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject property.
CLCI failed to comply with the terms notwithstanding the extensions of time given
by the bank. Nevertheless, CLCI tendered a check for P135,091.57 to cover fifty
percent (50%) of the twenty percent (20%) bid price. The check was dishonored. CLCI
tendered an additional P50,000.00.
On May 29, 1987, the bank sent Atty. Cuison a letter informing him that
the P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money
under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter,
requested that CLCIs outstanding obligation of P1,221,075.61 (as of July 31, 1987)
be reduced to P1 million, and the amount of P221,075.61 be condoned by the bank.
To show its commitment to the request, CLCI paid the bank P100,000.00
and P200,000.00 on August 28, 1987. The bank credited both payments as earnest
money.
A year later, CLCI inquired about the status of its request. The bank responded that
the request was still under consideration by the banks Manila office. On September
30, 1988, the bank informed CLCI that it would resell the subject property and gave
CLCI 15 days to make a formal offer; otherwise, the bank would sell the subject
property to third parties. On October 26, 1988, CLCI offered to repurchase the
subject property for P1.5 million, given that it had already tendered the amount
of P400,000.00 as earnest money.
CLCI subsequently claimed that the bank breached the terms of repurchase, as it had
wrongly considered its payments (in the amounts ofP140,485.18, P200,000.00
and P100,000.00) as earnest money, instead of applying them to the purchase price.
Through its counsel, CLCI demanded that the bank rectify the repurchase agreement
to reflect the true consideration agreed upon for which the earnest money had been
given. The bank did not act on the demand. Instead, it informed CLCI that the
amounts it received were not earnest money, and that the bank was willing to return
these sums, less the amounts forfeited to answer for the unremitted rentals on the
subject property. CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a
complaint for breach of contract.
Bank argues that the undisputed facts of the case show that there was no meeting
of the minds between the parties given CLCIs failure to give its consent and
conformity to the banks letter of October 20, 1986, confirmed by the testimony of
Atty. Cuison, no less, when he denied that CLCI consented to the agreements terms
of implementation.
ISSUE Whether there was a perfected contract of repurchase
HELD: YES.
The facts of the present case, although ambivalent in some respects, point on the
whole to the conclusion that both parties agreed to the repurchase of the subject
property.
A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks
board of directors passed a resolution for the repurchase of [your] property shows
that the tenor of acceptance, except for the repurchase price, was subject to
conditions not identical in all respects with the CLCIs letter-offer of July 31, 1986. In
this sense, the banks October 20, 1986 letter was effectively a counter-offer that
CLCI must be shown to have accepted absolutely and unqualifiedly in order to give
birth to a perfected contract. Evidence exists showing that CLCI did not sign any
document to show its conformity with the banks counter-offer. Testimony also
exists explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not agree
with the implementation of the repurchase transaction since the bank made a wrong
computation.
These indicators notwithstanding, we find that CLCI accepted the terms of the TRC
Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer
under the TRB Repurchase Agreement and, in fact, partially executed the agreement,
We counted the following facts, too, as indicators leading to the conclusion that a
perfected contract existed: CLCI did not raise any objection to the terms and
conditions of the TRB Repurchase Agreement, and instead, unconditionally paid
without protests or objections; CLCIs acknowledgment of their obligations under
the TRB Repurchase Agreement (as shown by Atty. Cuisons letter of November 29,
1986); and Atty. Cuisons admission that the TRB Repurchase Agreement was already
a negotiated agreement between CLCI and the bank,
Admittedly, some evidence on record may be argued to point to the absence of a
meeting of the minds (more particularly, the previous offers made by CLCI to change
the payment scheme of the repurchase of the subject property which was not
accepted; the banks expressed intent to offer the subject property for sale to third
persons at a higher price; and the unaccepted counter-offer by the respondents after
the bank increased the purchase price). These incidents, however, were the results
of CLCIs failure to comply with its obligations to pay the amounts due on the
stipulated time and were made after the parties minds had met on the terms of the
contract. The seemingly contrary indications, therefore, do not go into and affect
the perfection of the contract; they came after the contract had been perfected and,
as discussed below, were indicative of the banks cancellation of the repurchase
agreement.
*ANGEL V. TALAMPAS v. MOLDEX REALTY GR No. 170134, Jun 17, 2015
Blas v Santos
Elements of a contract: object
FACTS:
Simeon Blas married Marta Cruz before 1898. They had 3 children. Marta died in
1898, and the following year, Simeon married Maxima Santos. At the time of this
second marriage, no liquidation of the properties required by Simeon and Marta was
made. Simeon executed a last will and testament. At the time of the execution of
said will, Andres Pascual a son-in-law of the testator, and Avelina Pascual and others,
were present. Andres had married a descendant by the first marriage. The will was
prepared by Andres, with the help of his nephew Avelino Pascual. Simeon asked
Andres to prepare a document which was presented in court as Exhibit "A. The
reason why Simeon ordered the preparation of Exhibit "A" was because the
properties that Simeon had acquired during his first marriage with Marta had not
been liquidated and were not separated from those acquired during the second
marriage. Leoncio Gervacio, son-in-law of Simeon, testified that his children were
claiming from their grandfather Simeon the properties left by their grandmother
Marta. The claim was not pushed through because they reached into an agreement
whereby the parties agreed that Simeon and Maxima will give 1/2 of the estate of
Simeon.
Exhibit "A" states that the maker (Maxima) had read and knew the contents of the
will of Simeon - she was evidently referring to the declaration in the will (of Simeon
Blas) that his properties are conjugal properties and one-half thereof belongs to her
(Maxima Santos) as her share of the conjugal assets under the law. The agreement
or promise that Maxima makes in Exhibit "A" is to hold 1/2 of her said share in the
conjugal assets in trust for the heirs and legatees of her husband in his will, with the
obligation of conveying the same to such of his heirs or legatees as she may choose
in her last will and testament. Under Exhibit "A", therefore, Maxima contracted the
obligation and promised to give 1/2 of the properties to the heirs and legatees of
Simeon.
The court below held that Exhibit "A" cannot it be considered as a valid and
enforceable contract for lack of consideration and because it deals with future
inheritance. Plaintiffs-appellants argue before us that Exhibit "A" is both a trust
agreement and a contract in the nature of a compromise to avoid litigation.
ISSUE: Whether the object of the compromise is future inheritance and is therefore,
void.
HELD: No. Exhibit "A" is a compromise and at the same time a contract with a
sufficient cause or consideration. It is also contended that it deals with future
inheritance. We do not think that Exhibit "A" is a contract on future inheritance. It is
an obligation or promise made by the maker to transmit of her share in the
conjugal properties acquired with her husband, which properties are stated or
declared to be conjugal properties in the will of the husband. The conjugal properties
were in existence at the time of the execution of Exhibit "A" on December 26, 1936.
As a matter of fact, Maxima included these properties in her inventory of her
husband's estate of June 2, 1937. The promise does not refer to any properties that
the maker would inherit upon the death of her husband, because it is her share in
the conjugal assets. That the kind of agreement or promise contained in Exhibit "A"
is not void under Article 1271.
What is prohibited to be the subject matter of a contract under Article 1271 is "
future inheritance." To us future inheritance is any property or right not in existence
or capable of determination at the time of the contract, that a person may in the
future acquire by succession. The properties subject of the contract Exhibit "A" are
well defined properties, existing at the time of the agreement, which Simeon
declares in his statement as belonging to his wife as her share in the conjugal
partnership. Certainly his wife's actual share in the conjugal properties may not be
considered as future inheritance because they were actually in existence at the time
Exhibit "A" was executed.

Tanedo v CA (1996)
252 SCRA 80
Topic: Elements of a Contract; Essential; Object
DOCTRINE: (n)o contract may be entered into upon a future inheritance except in
cases expressly authorized by law.
FACTS:
Lazardo Taedo executed a notarized deed of absolute sale in favor of his eldest
brother, Ricardo Taedo, and the latters wife, Teresita Barera, private respondents
herein, whereby he conveyed to the latter in consideration of P1,500.00, one
hectare of whatever share I shall have over Lot No. 191, the said property being his
future inheritance from his parents.
Upon death of his father Matias, Lazaro executed an affidavit of conformity to
reaffirm, respect, acknowledge, and validate the sale I made in 1962.
Lazaro executed another notarized deed of sale in favor of private respondents
covering his undivided ONE TWELVE (1/12) of a parcel of land known as Lot 191. He
acknowledged therein his receipt of P 10,000.00 as consideration therefor.
Ricardo learned that Lazaro sold the same property to his children, petitioners
herein.
Petitioners filed a complaint for rescission (plus damages) of the deeds of sale
executed by Lazaro in favor of private respondents covering the property inherited
by Lazaro from his father. Liguez v. CA (December 15, 1957)
Topic: Essential Elemets of a Contract; Cause
DOCTRINE: A contract to be valid must be based on a legal cause. However, the
burden of proving the illegality of a cause in an apparent valid contract lies on the
one assailing such validity.
FACTS: Petitioner-appellant Conchita Liguez filed a complaint against the widow and
heirs of the late Salvador P. Lopez to recover a parcel of land. Liguez averred to be
its legal owner, pursuant to a deed of donation of said land, executed in her favor by
the late owner, Salvador P. Lopez. The defense interposed was that the donation was
null and void for having an illicit causa or consideration, which was the plaintiffs
entering into marital relations with Salvador P. Lopez, a married man; and that the
property had been adjudicated to the appellees as heirs of Lopez by the court of First
Instance.
The Court of Appeals found that when the donation was made, Lopez had been living
with the parents of appellant for barely a month; that the donation was made in view
of the desire of Salvador P. Lopez, a man of mature years, to have sexual relations
with appellant Conchita Liguez; that Lopez had confessed to his love for appellant to
the instrumental witnesses, with the remark that her parents would not allow Lopez
to live with her unless he first donated the land in question; that after the donation,
Conchita Liguez and Salvador P. Lopez lived together in the house that was built upon
the latter's orders, until Lopez was killed on July 1st, 1943, by some guerrillas who
believed him to be pro-Japanese.
ISSUE: WON the deed of donation is void because it was tainted with illegal cause or
consideration, of which donor and donee were participants.
HELD: YES. In the present case, it is scarcely disputable that Lopez would not have
conveyed the property in question had he known that appellant would refuse to
cohabit with him; so that the cohabitation was an implied condition to the donation,
and being unlawful, necessarily tainted the donation itself.
Here the facts as found by the Court of Appeals (and which we cannot vary)
demonstrate that in making the donation in question, the late Salvador P. Lopez was
not moved exclusively by the desire to benefit appellant Conchita Liguez, but also to
secure her cohabiting with him, so that he could gratify his sexual impulses. This is
clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he
was in love with appellant, but her parents would not agree unless he donated the
land in question to her. Actually, therefore, the donation was but one part of an
onerous transaction (at least with appellant's parents) that must be viewed in its
totality. Thus considered, the conveyance was clearly predicated upon an illicit
causa.
The appellant seeks recovery of the disputed land on the strength of a donation
regular on its face. To defeat its effect, the appellees must plead and prove that the
same is illegal. But such plea on the part of the Lopez heirs is not receivable, since
Lopez, himself, if living, would be barred from setting up that plea; and his heirs, as
his privies and successors in interest, can have no better rights than Lopez himself.
Carantes v CA, 76 SCRA 524 (1977)
DOCTRINE: It is total absence of cause or consideration that renders a contract
absolutely void and inexistent.
FACTS:
Mateo Carantes was the original owner of a certain parcel of land. When he died, he
was survived by his wife and six children. Subsequently, the parcel of land was
subjected for expropriation, and was later on indeed expropriated.
A deed denominated as Assignment of Right of Inheritance was executed by four of
Mateos children assigning Maximo Carantes their rights to inheritance over the lot.
Maximo then sold the remaining lots to the government and also registered on Mar.
16, 1940 the deed of Assignment of Right to Inheritance. The still remaining lot was
issued in the name of Maximo.
A complaint was filed against Maximo alleging that the deed be annulled on the
ground of fraud. The trial court rendered a decision stating that plaintiffs right of
action has prescribed. The CA reversed the decision. It also concluded that the deed
of "Assignment of Right to Inheritance" is void ab initio and inexistent on the grounds
that real consent was wanting and that there is no valid consideration in the said
contract.
ISSUE: Whether there was a valid cause in the said deed.
HELD: Yes. The SC did not agree with the respondent court's legal conclusion that
the deed of "Assignment of Right to Inheritance" is void ab initio and inexistent on
the grounds that real consent was wanting and the consideration of P1.00 is so
shocking to the conscience that there was in fact no consideration, hence, the action
for the declaration of the contract's inexistence does not prescribe pursuant to
article 1410 of the new Civil Code.
Article 1409 (2) of the new Civil Code relied upon by the respondent court provides
that contracts "which are absolutely simulated or fictitious" are inexistent and void
from the beginning. The basic characteristic of simulation is the fact that the
apparent contract is not really desired or intended to produce legal effects or in any
way alter the juridical situation of the parties.
The respondents' action may not be considered as one to declare the inexistence of
a contract for lack of consideration. It is total absence of cause or consideration that
renders a contract absolutely void and inexistent. In the case at bar consideration
was not absent. The sum of P1.00 appears in the document as one of the
considerations for the assignment of inheritance. In addition and this of great legal
import the document recites that the decedent Mateo Carantes had, during his
lifetime, expressed to the signatories to the contract that the property subject-
matter thereof rightly and exclusively belonged to the petitioner Maximino Carantes.
This acknowledgment by the signatories definitely constitutes valuable
consideration for the contract.
Buenaventura v CA (2003)
Carpio, J
Re: Cause; Contracts
DOCTRINE: Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the fulfillment or cancellation
of the obligation under an existing valid contract while the latter prevents the
existence of a valid contract.
FACTS
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of
plaintiffs Consolacion, Nora, Emma and Natividad as well as of defendants Fidel,
Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. Sought to
be declared null and void ab initio are certain deeds of sale of real property executed
by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-
defendant children and the corresponding certificates of title issued in their names
Petitioners allege that the deeds of sale are null and void because
a. Firstly, there was no actual valid consideration for the deeds of sale xxx
over the properties in litis;
b. Secondly, assuming that there was consideration in the sums reflected in
the questioned deeds, the properties are more than three-fold times
more valuable than the measly sums appearing therein;
c. Thirdly, the deeds of sale do not reflect and express the true intent of the
parties (vendors and vendees);
 d. Fourthly, the purported sale of the properties in litis was the result of a
deliberate conspiracy designed to unjustly deprive the rest of the
compulsory heirs (plaintiffs herein) of their legitime.
Petitioners assert that their respondent siblings did not actually pay the prices stated
in the Deeds of Sale to their respondent father. Thus, petitioners ask the court to
declare the Deeds of Sale void.
ISSUE
Whether the Deeds of Sale are void for lack of consideration
Whether the Deeds of Sale are void for gross inadequacy of price
HELD:
THERE WAS CONSIDERATION
A contract of sale is not a real contract, but a consensual contract. As a consensual
contract, a contract of sale becomes a binding and valid contract upon the meeting
of the minds as to price. If there is a meeting of the minds of the parties as to the
price, the contract of sale is valid, despite the manner of payment, or even the
breach of that manner of payment. If the real price is not stated in the contract, then
the contract of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the contract is
simulated, then the contract is void. Article 1471 of the Civil Code states that if the
price in a contract of sale is simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the
contract. Payment of the price goes into the performance of the contract. Failure
to pay the consideration is different from lack of consideration. The former results
in a right to demand the fulfillment or cancellation of the obligation under an
existing valid contract while the latter prevents the existence of a valid contract.
Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. To prove simulation, petitioners presented Emma Joaquin Valdozs
testimony stating that their father, respondent Leonardo Joaquin, told her that he
would transfer a lot to her through a deed of sale without need for her payment of
the purchase price. The trial court did not find the allegation of absolute simulation
of price credible. Petitioners failure to prove absolute simulation of price is
magnified by their lack of knowledge of their respondent siblings financial capacity
to buy the questioned lots. On the other hand, the Deeds of Sale which petitioners
presented as evidence plainly showed the cost of each lot sold. Not only did
respondents minds meet as to the purchase price, but the real price was also stated
in the Deeds of Sale. As of the filing of the complaint, respondent siblings have also
fully paid the price to their respondent father.
LOTS WERE SOLD FOR A VALID CONSIDERATION
Petitioners ask that assuming that there is consideration, the same is grossly
inadequate as to invalidate the Deeds of Sale. (ART 1355, 1470)
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470
of the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed,
there is no requirement that the price be equal to the exact value of the subject
matter of sale. All the respondents believed that they received the commutative
value of what they gave.
Petitioners claimed that their father, Lazaro, executed an Absolute Deed of Sale
dated December 29, 1980, conveying to his ten children his allotted portion under
the extrajudicial partition executed by the heirs of Matias, which deed included the
land in litigation (Lot 191).
Private respondents, however presented in evidence a Deed of Revocation of a
Deed of Sale , wherein Lazaro revoked the sale in favor of petitioners for the reason
that it was simulated or fictitious - without any consideration whatsoever.
ISSUE: Whether sale of future inheritance is valid as an object of a contract
HELD:
The sale made in 1962 involving future inheritance is not really at issue here. In
context, the assailed Decision conceded it may be legally correct that a contract of
sale of anticipated future inheritance is null and void.
But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347
of the Civil Code, (n)o contract may be entered into upon a future inheritance
except in cases expressly authorized by law.
Consequently, said contract made in 1962 is not valid and cannot be the source of
any right nor the creator of any obligation between the parties.
In the instant case, the trial court found that the lots were sold for a valid
consideration, and that the defendant children actually paid the purchase price
stipulated in their respective Deeds of Sale. Actual payment of the purchase price
by the buyer to the seller is a factual finding that is now conclusive upon us.
*Toledo vs. CA, G.R. No. 167838, August 5, 2015
97.G.R. No. 126013. February 12, 1997
SPOUSES THEIS vs. COURT OF APPEALS
Facts: Private respondent Calsons Development Corporation is the owner of three
(3) adjacent parcels of land. Adjacent to parcel no. 3, which is the lot covered by TCT
No. 15684, is a vacant lot denominated as parcel no. 4. Calsons Development
constructed a two-storey house on parcel no. 3. In a survey conducted in 1985, the
two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel
no. 4, which was not owned by private respondent. Unaware of the mistake, Calsons
Development through its authorized representative, one Atty. Tarcisio S. Calilung,
sold said parcel no. 4 to petitioners. When petitioners returned to the Philippines,
they went to Tagaytay to look over the vacant lots and to plan the construction of
their house thereon, they discovered that parcel no. 4 was owned by another person.
They also discovered that the lots actually sold to them were parcel nos. 2 and 3
covered by TCT Nos. 15516 and 15684, respectively. Parcel no. 3, however, could not
have been sold to the petitioners by the private respondents as a two-storey house,
the construction cost of which far exceeded the price paid by the petitioners, had
already been built thereon even prior to the execution of the contract between the
disputing parties. To remedy the mistake, private respondent offered parcel nos. 1
and 2 covered by TCT Nos. 15515 and 15516, respectively, as these two were
precisely the two vacant lots which private respondent owned and intended to sell
when it entered into the transaction with petitioners. Petitioners adamantly rejected
the good faith offer.
Issue: Whether or not the Contract of Sale between Spouses Theis and Calsons
corporation is voidable.
Ruling: Yes. Under Article 1390, contracts are voidable or annullable when the
consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
Calsons obviously committed an honest mistake in selling parcel no. 4 for it is quite
impossible to sell the lot in question as the same is not owned by Calsons. The good
faith of the private respondent is evident in the fact that when the mistake was
discovered, it immediately offered two other vacant lots to the petitioners or to
reimburse them with twice the amount paid. That petitioners refused either option
left the private respondent with no other choice but to file an action for the
annulment of the deed of sale on the ground of mistake. A contract may be annulled
where the consent of one of the contracting parties was procured by mistake, fraud,
intimidation, violence, or undue influence. Art. 1331 of the New Civil Code provides
for the situations whereby mistake may invalidate consent. It states:
"Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract."
The concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which
is a wrong conception about said thing, or a belief in the existence of some
circumstance, fact, or event, which in reality does not exist. In both cases, there is a
lack of full and correct knowledge about the thing. The mistake committed by the
private respondent in selling parcel no. 4 to the petitioners falls within the second
type. Verily, such mistake invalidated its consent and as such, annulment of the deed
of sale is proper.
Martinez vs Hongkong and Shanghai Bank G.R. No. L-5496 Date: February 19, 1910
Ponente: J. Moreland Plaintiffs-appellants: MERCEDES MARTINEZ Y FERNANDEZ,
ET AL. Defendants-appellants: THE HONGKONG & SHANGHAI BANKING
CORPORATION, ET AL.
FACTS: 1. Alejandro S. Macleod (husband of Mercedes) was for many years the
managing partner of the house of Aldecoa & Co. in the city of Manila.
2. He withdrew from the management when Aldecoa & Co. went into liquidation.
3. Hongkong & Shanghai banking Corporation was a creditor of that firm to the
extent of several hundred thousand pesos and claimed to have a creditor's lien in
the nature of a pledge over certain properties of the debtor. 4. Bank began a civil
action against Alejandro, Mercedes, Aldecoa & Co., and the firm known as Viuda e
Hijos de Escao.
A certain undertaking in favor of Aldecoa & Co. had been pledged to the bank to
secure the indebtedness of Aldecoa & Co., but that this obligation had been
wrongfully transferred by Alejandro into an obligation in favor in Mercedes to the
prejudice of the bank.
Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for the
recovery of certain shares of stock basing its right to recover upon alleged criminal
misconduct of Alejandro in his management of the firm's affairs.
5. Knowing that criminal complaints would be filed against him, Alejandro went to
Macao (Portuguese colony) a territory not covered by the extradition treaty between
US and Portuguese.
6. Aldecoa filed a complaint against Alejandro for
Falsification of commercial document. The GPR requested the Portuguese
government for extradition but this was denied
Embezzlement
7. Aldecoa & Co. and the bank, on the settlement, insisted upon the conveyance not
only of all the property of Alejandro but also of at least a portion of the property
claimed by Mercedes.
Alejandro's representative did not resist but Mercedes resisted with respect to her
properties alleging that these were exclusively hers.
8. They met again to try and settle the case
The conditions and terms were to be explained to Mr. Kingcome (son-in-law of
Mercedes and businessman)
The explanation was made by Mr. Stephen, the manager of the bank (one of the
friends of Mr. Kingcome) but it is contested whether Kingcome communicated such
substance to Mercedes before she signed the document
Reference was made to the British Colony in Manila where Kingcome, Stephen,
Alejandro were prominent members and scandal and disgrace will ensure if
settlement is not made.
Mr. Kingcome got the impression from that interview that Mr. Stephen thought
unless the settlement were consummated additional and mortifying misfortunes
wound fall upon Alejandro's family.
9. A long conference was held
If Mercedes accepts, the civil suits against them would be dismissed and criminal
charges would be withdrawn
If she refuses, her husband will spend the rest of his life in Macao or be criminally
prosecuted
She refused and it was evident no settlement or comprise can be arrived at and
just do the best to defend Alejandro.
10. Mercedes and Mr. William (nephew and close friend of Mercedes and Alejandro),
now her attorney, talked wherein Mercedes agreed to the terms and authorized
William to execute the contract of settlement on her behalf, and after corrections, it
was signed.
11. Aldecoa took possession of the properties of Alejandro and Mercedes, and the
complaints were withdrawn or dismissed, Alejandro returned to Manila.
12. Mercedes filed a complaint that there was intimidation.
ISSUE1: WON the contract can be annulled since Mercedes' consent was obtained
due to violence and intimidation?
HELD 1: Valid, no duress.
Discussion
Contracts which are declared void and of no force upon the ground that they were
obtained by fraud, duress, or undue influence are so declared for the reason that the
complaining party never really gave his consent thereto. The consent in such case is
not in the eye of the law a consent at all. The person has not acted. He has done
nothing he was in vinculis(in chains). Real Duress Consent given against his wishes or
judgment or reluctantly or without hope of profit Void Valid Example: A person
settles since he injured another. He must make reparation or face the consequences.
No difference between one choosing which gives him greater profit and one
choosing the lesser evil In this case
1. The elements of duress is lacking.
2. The most that the facts disclose is that the plaintiff was reluctant to relinquish
certain rights which she claimed to have in certain property to the end that she might
be relieved from litigation then pending against her and that her husband might
escape prosecution for crimes alleged to have been committed; and that she
persisted for a considerable time in her refusal to relinquish such claimed rights.
3. The fact that she did relinquish them upon such consideration and under such
condition does not of itself constitute duress or intimidation, nor does it destroy the
obligatory effect and force of her consent.
4. Duress needs more than that she must have acted from fear and not from
judgment.
ISSUE2: WON the cases cited by plaintiff is applicable?
HELD2: NO, not applicable.
1. In those cases there was no time within which to deliberate the matter as it should
have been deliberated or take the advice of others or counsel. 2. The treats made to
secure the performance of the acts complained of were made directly to the
complaining party by the person directly interested or by someone in his behalf who
was working in his interest and who had no interest whatever in the welfare of the
complaining party.
3. There was no consideration for the performance of the act complained of except
immunity from the prosecution threatened.
4. The property transferred or encumbered by the act complained of was the
separate property of the person performing the act in which the person for whom
the act was performed claimed no interest whatever.
5. There was no dispute as to the title of the property transferred or encumbered,
no claim made to it by anybody, no suits pending to recover it or any portion of it,
and no pretension that it could be taken for the debts of the husband or of any other
person. The 2 other cases had the benefit of legal advice or friend but none of the
other circumstances listed above were present. Basically, the cases cited had
material differences with the instant case.
International Corporate Bank v. Gueco, 351 SCRA 516 The joint motion to dismiss cannot in any way have prejudiced Dr. Gueco. The motion
to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner
FACTS against it before the lower court would be dismissed with prejudice.

Spouses Gueco obtained a loan from petitioner International Corporate Bank (now
Union Bank of Philippines) to purchase a car. Respondent spouses executed a
promissory note in consideration, which were payable in monthly installment and
chattel mortgage over the car.
The joint motion to dismiss was but a natural consequence of the compromise
agreement and simply stated that Dr. Gueco had fully settled his obligation, hence,
the dismissal of the case. Petitioners act of requiring Dr. Gueco to sign the joint
motion to dismiss cannot be said to be a deliberate attempt on the part of petitioner
to renege on the compromise agreement of the parties.

The spouses however, defaulted payment. The car was detained by the bank. When
Dr. Gueco delivered the mangers check of P150,000, the car was not released
because of his refusal to sign the Joint Motion to Dismiss (JMD).

The bank insisted that the JMD is a standard operating procedure to effect a
compromise and to preclude future filing of claims or suits for damages. Gueco
spouses filed an action against the bank for fraud, failing to inform them regarding
JMD during the meeting & for not releasing the car if they do not sign the said
motion.

ISSUE

Whether or not International Corporate Bank was guilty of fraud.

HELD

No. Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful omission,
knowing and intending the effects which naturally and necessarily arise from such
act or omission. The fraud referred to in Article 1170 of the Civil Code is the
deliberate and intentional evasion of the normal fulfillment of obligation. The court
fails to see how the act of the petitioner bank in requiring the respondent to sign the
joint motion to dismiss could constitute as fraud.