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QUIZ NO. 16: Outline: Contracts – Essential Requisites [Art.

1318];
Consent [Art. 1319-1346]) April 16, 2018 (Monday)

Enriquez vs. Sun Life Assurance Co., 41 Phil. 269

De Leon (Art. 1319)

Offer was withdrawn after letter containing the acceptance was sent but
before it was received by the offerer.

Facts: X, on his behalf and that of his co-owners, wrote a letter to Y, giving him
an option to lease their building to Z. After some negotiation, no definite
agreement was arrived at. Y finally wrote a letter to X advising the latter that
all his propositions, as amended and supplemented were accepted.

This letter was received by X at 2:53 P.M. of March 6. On that same day, at
11:25 A.M., X had, in turn, written a letter to Y withdrawing the offer to lease
the building. Y brought action to compel the execution of the contract of
lease. Issue: Under the facts was a contract perfected between X and Y?

Held: No. When X sent his letter of withdrawal to Y, X had not yet received the
letter of acceptance, and when it reached him, he had already sent his letter
of withdrawal. Before X received notice of the acceptance, X was not yet
bound by it and consequently, he had the right to withdraw the offer. 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 binding effect, the offer was
then lacking. Though both the offer and acceptance existed, they did not
meet to give birth to a contract. (Landicho and Harden vs. Arias, supra; see
Francisco vs. GSIS, 7 SCRA 577 [1963]; Enriquez vs. Sun Life Assurance Co., 41
Phil. 269 [1920]; Sambrano vs. Court of Tax Appeals, 101 Phil. 1 [1957].)

Jurado (Art. 1319)

The records show that on September 24, 1917, Joaquin Herrer applied to the
defendant company through its local office in Manila for a life annuity. He
paid the sum of P6,000 and was issued a provisional receipt. The application
was immediately forwarded to the head office of the company in Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance
by cable to Manila. Whether notice of this acceptance was sent to Herrer by
the Manila office is a disputed question. On December 4, 1917, the policy was
issued at Montreal. On December 18, 1917, the lawyer of Herrer wrote to the
Manila office that Herrer desired to withdraw his application. The following day
the local office replied to the lawyer stating that the policy had been issued
and called attention to the notification of November 26, 1917. This letter was
received by the lawyer on December 21, 1917. Herrer, however, died on
December 20, 1917. This action was subsequently commenced by the
administrator of the estate of Herrer to recover the sum of P6,000 from the
defendant company. The defendant company, however, contended that
the plaintiff cannot recover the amount on the ground that the contract of
life annuity had already been perfected. Holding that it is the provision of the
second paragraph of Art. 1262 (now Art. 1319) of the Civil Code and not Art.
54 of the Code of Commerce that will apply, and that the letter of November
26, 1917, was never actually mailed, and thus, was never received by the
applicant,

the Supreme Court, speaking through Justice Malcolm, ruled that the contract
was not perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant.

Laudico vs. Arias, 43 Phil. 270

Sta. Maria (Art 1319-1320)

Making an offer means inviting an acceptance which, if given, will finally


create a contract. The offer therefore empowers the person offered to create
a contract.

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).

Albano

There was a proposed building of Insular Life in Lucena City. There were
bidders, among which was Asset Builders which submitted a proposal to
contract the same. A conference was held between the representatives of
both parties. Insular proposed the adjustment of the bid to accommodate the
wage increase but the representatives of Asset were non-committal.
Subsequently it agreed to readjust the amount of bid. Finally, Insular awarded
the contract to Asset and issued a memorandum to commence with the
construction and sent a copy to Asset with a Notice of Award and to Proceed.
Asset did not affix its signature to the Notice of Award. There was likewise no
Construction Agreement. Then, it sent a letter to Insular that it cannot
undertake the construction because of the escalation of the prices of
materials. Was there a perfected contract?

ANS. None, because there was no meeting of the minds. It is axiomatic that
where the parties merely exchange offers and counter-offers, no agreement
or contract is perfected. A party may withdraw its offer or counter-offer prior to
its receipt of the other party’s acceptance thereof. To produce an agreement,
the offer must be certain and the acceptance timely and absolute. The rule on
the concurrence of the offer and its acceptance did not apply, because other
matters or details — in addition to the subject matter and the consideration —
would still be stipulated and agreed upon by the parties.

While there was an initial offer made, there was no acceptance; but when
there allegedly came an acceptance that could have had a binding effect,
the offer was already lacking. The offer and its acceptance “did not meet to
give birth to a contract.” (citing Laudico vs. Arias Rodriguez, 43 Phil. 270 [1922];
Insular Life Assurance Co., Ltd. vs. Asset Builders Corp., G.R. No. 147410,
February 05, 2005).

Paras (Art. 1319)

FACTS: On Feb. 5, 1919, Arias wrote Laudico a letter, offering a lease contract.
On Mar. 6, 1919, Laudico wrote a letter of complete acceptance, which was
received by Arias that same afternoon. But that same morning Arias had
already written Laudico a letter withdrawing the offer. Issue: Was there a
contract here?

HELD: No, because prior to receipt of the letter of acceptance, the offer had
already been withdrawn. In other words, it does not matter that the letter of
withdrawal may have been received later by the offeree than receipt of the
letter of acceptance by the offerer. What is important is that the letter of
withdrawal was MADE prior to the knowledge of acceptance.

De Leon (Art 1319)

(2) Revocation of offer. — Before the acceptance is known, the offer can be
revoked, it not being necessary, in order for the revocation to have the effect
of preventing the perfection of the contract, that it be known by the
acceptant. (see Laudico and Harden vs. Arias, 43 Phil. 270 [1922].)
Jurado (Art. 1319)

On February 6, 1919, defendant wrote a letter to the plaintiff, giving him an


option to lease a certain 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. After certain negotiations, the
plaintiff finally wrote a letter to the defendant on March 6, 1919, advising him
that all his propositions were accepted. This letter was received by the
defendant by special delivery at 2:53 p.m. of that day. On that same day, at
11:25 a.m., the defendant had, in turn, written a letter to the plaintiff
withdrawing the offer. This letter was sent through a messenger and should
have been received that same morning, or at least, before the defendant
had received the letter of acceptance. Because of the refusal of the
defendant to recognize the existence of a perfected contract, plaintiff
brought this action to compel him to execute the contract of lease of the
building in question. Holding that no contract was perfected, the Supreme
Court, speaking through Justice Avanceña ruled:

“Under Article 1262, paragraph 2 (now Art. 1319, par. 2) of the Civil Code, an
acceptance by the latter does not have any effect until it comes to the
knowledge of the offeror. 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 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.’’

Sanchez vs. Rigos, 45 SCRA 398

Ulep (P. 247)

Can Sergio claim that whatever they might have agreed upon cannot be
enforced because any agreement relating to the sale of real property must
be supported by evidence in writing and they never reduced their agreement
to writing?

SUGGESTED ANSWER:
No, Sergio’s claim has no legal basis.
The contract at issue in the present case is the option con tract, not the
contract of sale for the real property. Therefore, Article 1403 does not apply.

The Statute of Frauds covers an agreement for the sale of real property or of
an interest therein. Such agreement is unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing (Art. 1403(e), Civil
Code). Here, Marcelo and Sergio merely entered into an option contract,
which refers to a unilateral promise to buy or sell, which need not be in writing
to be enforceable (Sanchez v. Rigos, G.R. No. L 25494,June 14,1972, citing
Atkins, Kroll and Co., Inc.v. Cua HianTek and Southwestern Sugar dr Molasses
Co.v. AtlanticGulf & Pacific Co.)

Jurado (Art. 1324)

“A’’ agreed to sell to “B’’ a parcel of land for P5,000.00. “B’’ was given up to
May 6, 1975 within which to raise the necessary funds. It was further agreed
that if “B’’ could not produce the money on or before said date, no liability
would attach to him. Before May 6, 1975, “A’’ backed out of the agreement.
Is “A’’ obliged to sell the property to “B’’? Explain. (1975 Bar Problem)

Answer — Assuming that the offer of “A’’ to sell the land to “B’’ is merely a
unilateral offer to sell, and that there is still no bilateral agreement in the sense
that “B’’ had already agreed to buy the land, “A’’ is not obliged to sell the
property to “B.’’ In such case, it is clear that the general rule stated in Art. 1324
and the particular rule stated in Art. 1479, par. 2, of the Civil Code are
applicable. As a matter of fact, even if “B’’ has formally accepted the option
given to him by “A,’’ such acceptance would be of no moment since the
option is not supported by any consideration distinct from the purchase price.
“A’’ can always change his mind at any time. The option does not bind him for
lack of a cause or consideration. It would have been different if “B’’ had
accepted the offer to sell within the period of the option before said offer was
withdrawn by “A.’’ In such a case, a contract of sale would have been
generated right then and there. As it turned out, “A’’ withdrew his offer in time.
(See Sanchez vs. Rigor, 45 SCRA 368)

(Note: In Sanchez vs. Rigos, supra, the Supreme Court finally resolved a
question which arose out of the use of the word “accepted’’ in modifying the
phrase “unilateral promise to buy or to sell’’ in Art. 1479, par. 2, of the Civil
Code. “Accepted’’ refers to the option, not to the offer, to buy or to sell; in
other words, it refers to the acceptance by either prospective vendee or
vendor of the option of, let us say, ninety days within which he shall decide
whether or not he shall buy or sell the thing. Thus, if “A’’ offers to sell a lot to
“B’’ for P200,000, and gives the latter an option of ninety days within which to
decide whether or not he shall buy the property, and the latter accepts the
option, two possible situations may arise: (1) In accepting the option, “B’’ pays
to “A’’ an “option money’’ of, let us say, P5,000 which is distinct from the
purchase price. In such case, there is already a perfected preparatory
contract of option. “A’’ is bound by his offer. “B’’ shall now decide within the
period of the option whether or not he shall buy the property. If he decides to
buy, he shall then pay to “B’’ the price of P200,000; if he decides otherwise, no
contract of sale will ever be perfected.

(2) In accepting the option, “B’’ does not pay any “option money’’ to “A’’. In
such case, there is no perfected preparatory contract of option for lack of a
consideration. The result is a mere offer to sell, acceptance or which will be
suffcient to generate a perfected contract of sale. But suppose that
meanwhile, “A’’ has changed his mind? The lot is no longer for sale. “B’’, on
the other hand, has decided to buy the property. What will now happen?
Under this situation, the one who is first to notify the other of his decision
emerges the victor. If “A’’ is the first to notify “B’’ of his change of mind, no
contract of sale will ever be perfected; if “B’’ is the first to notify “A’’ of his
acceptance of the offer, a contract of sale has already been perfected.)

See Rural Bank of Caloocan City vs. CA, 104 SCRA 151

Sta. Maria (Art 1342)

Misrepresentation by a third person vitiates consent only if it created


substantial mistake and the same is mutual. In Rural Bank of Caloocan vs.
Court of Appeals74 where a person induced an elderly woman to co-sign a
promissory note as debtor and to mortgage her property, without said woman
knowing the nature of the contract, and where the same person successfully
misrepresented to the bank the qualification of the elderly woman to induce
the bank to grant the loan, the Supreme Court said that the loan agreement
signed by the elderly woman can be annulled on the ground of mistake in the
giving of consent by the parties. Pertinently, the Supreme Court said:

“Thus, as a result of the fraud upon Castro and the misrepresentation to


the bank inflicted by the Valencias, both Castro and the bank committed
mistake in giving their consents to the contracts. In other words, substantial
mistake vitiated their consents given. For if Castro had been aware of what
she signed and the bank of the true qualifications of the loan applicant, it is
evident that they would not have given their consents to the contracts.

Pursuant to Article 1342 of the Civil Code which provides:


Article 1342. Misrepresentation by a third person does not vitiate
consent, unless such
misrepresentation has created substantial mistake and the same is mutual.

we cannot declare the promissory note (Exhibit 2) valid between the bank
and Castro and the mortgage contract (Exhibit 6) binding on Castro beyond
the amount of P3,000.00 for while the contracts may not be invalidated insofar
as they affect the bank and Castro on the ground of fraud because the bank
was not a participant thereto, such may however be invalidated on the
ground of substantial mistake mutually committed by them as a consequence
of the fraud and misrepresentation inflicted by the Valencias. Thus, in the case
of Hill vs. Velosos (31 Phil. 160), this Court declared that a contract may be
annulled on the ground of vitiated consent if deceit by a third person, even
without connivance or complicity with one of the contracting parties, resulted
in mutual error on the part of the parties to the contract.

Paras (Art. 1331)

FACTS: Thru alleged fraud committed by a third party (the Valencia spouses),
Maxima Castro found herself indebted to a Rural Bank for a total debt of
P6,000 (P3,000.00 was what
she intended to borrow; the Valencias added another P3,000.00 for
themselves, with Castro signing the promissory note as comaker). Issue: For
how much is Castro liable?

HELD: Only for P3,000. The contract can be partially annulled insofar as Castro
is concerned, not because of fraud (neither party — the Bank nor Castro had
committed fraud), but because of mutual error caused by the fraud
attributable to the Valencias. The mortgage over Castro’s lot is reduced insofar
as it exceeds Castro’s personal loan.

De Leon (Art. 1342)

A third person has no connection with a contract. Consequently, a


misrepresentation by him does not vitiate consent. A party should not be
made to suffer for the imprudence of another in believing the fraud of a third
person. The presumption is that both contracting parties are acting in good
faith.

However, if the misrepresentation by the third person has created substantial


mistake and the same is mutual, that is, it affects both parties, the contract
may be annulled but principally on the ground of mistake, even if the deceit
was without the complicity with one of the parties. If the misrepresentation has
been employed by a third person in connivance with, or at least with
knowledge of the party benefited by the fraud, it is deemed to have been
exercised by such party upon the other contracting party. (see Hill vs. Veloso,
31 Phil. 160 [1915]; Rural Bank of Caloocan vs. Court of Appeals, 104 SCRA 151
[1981].) It should be remembered that force or intimidation employed by a
third person on one of the parties makes a contract voidable. (Art. 1336.) The
reason is because the consent is vitiated just the same.

Jurado (Art. 1342)

Problem — C, an old and ignorant woman, was helped by V in obtaining a


loan of P3,000.00 from X Rural Bank secured by a mortgage on her house and
lot. On the day she signed the promissory note and the mortgage covering
the loan, she also signed several documents. One of these documents signed
by her was promissory note of V for a loan of P3,000.00 also secured by a
mortgage on her house and lot. Several years later, she received advice from
the sheriff that her property shall be sold at public auction to satisfy the two
obligations. Immediately she filed suit for annulment of her participation as co-
maker in the obligation contracted by V as well as of the mortgage in relation
to said obligation of V on the ground of fraud and mistake. Upon filing of the
complaint, she deposited P3,383.00 in court as payment of her personal
obligation including interests.

(a) Can be held liable for the obligation of V? Why?


(b) Was there a valid and effective consignation considering that there was
no previous tender of payment made by C to the Bank? Why?

Answer — (a) C cannot be held liable for the obligation of V. It is crystal clear
that C’s participation in V’s obligation both as co-maker and as mortgagor is
voidable not on the ground of fraud because the Bank was not a participant
in the fraud committed by V, but on the ground of mistake. There was
substantial mistake on the part of both C and the Bank mutually committed by
them as a consequence of the fraud employed by V. (See Rural Bank of
Caloocan City vs. CA, 104 SCRA 151.)

(b) Despite the fact that there was no previous tender of payment made
directly to the Bank, nevertheless, the consignation was valid and effective.
The deposit was attached to the record of the case and the Bank had not
made any claim thereto. Therefore, C was right in thinking that it was useless
and futile for her to make a previous offer and tender of payment directly to
the Bank. Under the foregoing circumstances, the consignation was valid, if
not under the strict provisions of the law, under the more liberal consideration
of equity. (Ibid.)
Blas vs. Santos, 111 Phil. 503

De Leon (Art. 1347-1348)

Future inheritance is any property or right, not in existence or capable of


determination at the time of the contract, that a person may inherit in the
future. (Blas vs. Santos, 1 SCRA 899 [1961].)

Jurado (Art. 1349)

Simeon Blas married Marta Cruz in 1898. Out of this marriage there were three
children. The following year after Marta’s death, Simeon contracted a second
marriage with Maxima Santos. There were no children out of this marriage. At
the time of the second marriage, no liquidation of the properties of the first
marriage was made. On Dec. 26, 1936, only over a week before his death on
Jan. 9, 1937, Simeon executed a will declaring all of his properties as conjugal
and giving one-half thereof to Maxima as her share. On the same date,
Maxima signed a notarized document, stating that she had read the will of
her husband and that she promises to convey by will one half of the share
given to her to the children of her husband by his previous marriage. As a
result, the children of Simeon by his first marriage brought this action against
the estate of Maxima asking for the enforcement of the promise contained in
the document. It is now contended that the promise is not enforceable
because it lacks a sufficient cause or consideration and that, being a contract
with respect to future inheritance, it falls within the purview of the prohibition
enunciated in Art. 1271 (now Art. 1347) of the Civil Code.

Held: Considering that the properties of the first marriage had not been
liquidated, and the further fact that such properties were actually included as
conjugal properties of the second marriage, it is clear that the document
signed by Maxima is the compromise defined in Art. 1809 ( now Art. 2128) of
the Civil Code. Its execution was ordered by the testator evidently to prevent
his heirs by his first marriage from contesting his will and demanding liquidation
of the conjugal properties acquired during his first marriage. It is, therefore, a
contract with a sufficient cause or consideration. Neither does the prohibition
enunciated in Art. 1271 (now Art. 1347) of the Civil Code apply. What is
prohibited under this article is a contract which deals with 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. Here, the subject matters of
the contract signed by Maxima are well-defined properties, existing at the
time of the agreement.
Sta. Maria (Art. 1347)

In Blas vs. Santos where the wife agreed to give whatever her share in the
conjugal partnership property to her heirs once the husband dies, the
Supreme Court said that such agreement does not involve future inheritance,
to wit:

It is not an obligation or promise made by the maker to transmit one-half 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. x x x The promise does not refer to any properties that the maker
would inherit.

Ramon Magsaysay Award Foundation vs. CA, G.R. No. 55998, Jan. 17, 1985)

Albano (p. 568.569)

A and B are the parties in a contract of lease which Is to expire on December


31, 1993. Sometime in November 1993, they started negotiating for a new
contract. A sent a draft of his proposed contract to B. B also sent a letter asking
A to include three (3) proposed terms and placed therein a cover-letter that
if A would be agreeable to the three (3) terms the contract would be
considered signed and perfected. A agreed and later sent the contract
already signed by him to B for his signature. Suppose B would not sign, can you
consider the contract signed and perfected? Why?

ANS. Yes, because the consent can be derived from the communications
between A and B. Consent can be manifested in any form, like a series of
communications (Ramon Magsaysay Award Foundation vs. CA, G.R. No.
55998, January 17,1985), or through a marginal note (NGA vs. IAC, G.R. No.
74470, March 8, 1989), or through the acceptance of a down payment.
(Topacio vs. CA, et al., G.R. No. 102606, July 3, 1992).

Paras (art. 1319)

Even if the draft renewal contract had not been signed by the lessor, the
parties may be deemed to have agreed to renew their lease contract
considering the exchanges of letters between, and the implementing acts of,
the parties.
Jurado (Art. 1319)

When Contracts are Perfected — In general, contracts are perfected from the
moment that there is a manifestation of the concurrence between the offer
and the acceptance with respect to the object and the cause which shall
constitute the contract. (Art. 1319, par. 1, New Civil Code.)

However, if the acceptance is made by letter or telegram, we must distinguish.


According to Art. 1319, par. 2, of the New Civil Code, the contract is perfected
from the moment that the offeror has knowledge of such acceptance, while
according to Art. 54 of the Code of Commerce, the contract is perfected from
the moment an answer is made accepting the offer. Because of the repealing
clause found in Art. 2270 of the New Civil Code, it is submitted that Art. 54 of
the Code of Commerce can now be applied only to purely commercial
contracts, such as joint accounts, maritime contracts, etc. We can, therefore,
say that the rule found in the second paragraph of Art. 1319 of the New Civil
Code is the general rule, while that found in Art. 54 of the Code of Commerce
is the exception.

Manifestation of Consent. — Before there is consent, it is essential that it must


be manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. Once there is such
a manifestation of the concurrence of the wills of the contracting parties, the
period or stage of negotiation is terminated. The contract, if consensual, is
finally perfected.

Thus, it was held, that even if the draft renewal contract had not been signed
by the lessor, the parties may be deemed to have agreed to review their lease
contract considering the exchanges of letters between, and the
implementing acts of the parties. (Ramon Magsaysay Award Foundation vs.
CA, G.R. No. 55998, Jan. 17, 1985.)

NGA vs. IAC, G.R. No. 74470, March 8, 1989

Albano (p. 568.569)

A and B are the parties in a contract of lease which Is to expire on December


31, 1993. Sometime in November 1993, they started negotiating for a new
contract. A sent a draft of his proposed contract to B. B also sent a letter asking
A to include three (3) proposed terms and placed therein a cover-letter that
if A would be agreeable to the three (3) terms the contract would be
considered signed and perfected. A agreed and later sent the contract
already signed by him to B for his signature. Suppose B would not sign, can you
consider the contract signed and perfected? Why?
ANS. Yes, because the consent can be derived from the communications
between A and B. Consent can be manifested in any form, like a series of
communications (Ramon Magsaysay Award Foundation vs. CA, G.R. No.
55998, January 17,1985), or through a marginal note (NGA vs. IAC, G.R. No.
74470, March 8, 1989), or through the acceptance of a down payment.
(Topacio vs. CA, et al., G.R. No. 102606, July 3, 1992).

Topacio vs. CA, et. al., G.R. No. 102606, July 3, 1992

Albano (p. 568.569)

A and B are the parties in a contract of lease which Is to expire on December


31, 1993. Sometime in November 1993, they started negotiating for a new
contract. A sent a draft of his proposed contract to B. B also sent a letter asking
A to include three (3) proposed terms and placed therein a cover-letter that
if A would be agreeable to the three (3) terms the contract would be
considered signed and perfected. A agreed and later sent the contract
already signed by him to B for his signature. Suppose B would not sign, can you
consider the contract signed and perfected? Why?

ANS. Yes, because the consent can be derived from the communications
between A and B. Consent can be manifested in any form, like a series of
communications (Ramon Magsaysay Award Foundation vs. CA, G.R. No.
55998, January 17,1985), or through a marginal note (NGA vs. IAC, G.R. No.
74470, March 8, 1989), or through the acceptance of a down payment.
(Topacio vs. CA, et al., G.R. No. 102606, July 3, 1992).

Ulep

Bert offers to buy Simeon’s property under the following terms and conditions:
PI million purchase price, 10% option money, the balance payable in cash
upon the clearance of the property of all illegal occupants. The option money
is promptly paid and Simeon clears the property of all illegal occupants in no
time at all. However, when Bert tenders payment of the balance and asks
Simeon for the deed of absolute sale, Simeon suddenly has a change of heart,
claiming that the deal is disadvantageous to him as he had found out that the
property can fetch three times the agreed purchase price. Bert seeks specific
performance but Simeon contends that he has merely given Bert an option to
buy and nothing more, and offers to return the option money which Bert
refuses to accept.
A. Explain the nature of an option contract. (2%)
B. Will Bert's action for specific performance prosper? Explain. (4%)
C. May Simeon justly refusal to proceed with the sale by the fact that the deal
is financially disadvantageous to him? Explain. (4%)

SUGGESTED ANSWERS:

A. An option contract is one granting a privilege to buy or sell within an agreed


time and at a determined price. It must be supported by a consideration
distinct from the price. (Art.
1479 and 1482, NCC).

B. Bert's action for specific performance will prosper because there was a
binding agreement of sale, nor just an option contract. The sale was perfected
upon acceptance by Simeon of 10% of the agreed price. This amount is in
reality earnest money which, under Art. 1482, “shall be considered as part of
the price and as proof of the perfection of the contract.” (Topacio v. CA, 211
SCRA 291 [1992]; Villongco Realty v. Bormahcco, 65 SCRA 352 [1975]).

C. Simeon cannot justify his refusal to proceed with the sale by the fact that
the deal is financially disadvantageous to him. Having made a bad bargain is
not a legal ground for pulling out a binding contract of sale. In the absence
of some actionable wrong by the other party (Vales v. Villa, 35 Phil. 769 [1916],
and no such wrong has been committed by Bert. (Answer by UP Law Center)

b) Necessary legal capacity of the parties


i) who cannot give consent- Art.1327

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;


(2) Insane or demented persons, and deaf-mutes who do not know how to
write.
a) One afflicted with senile dementia or advanced age
CHAPTER 2
Essential Requisites of Contracts

General Provisions

Article 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. (1261)

SECTION 1
Consent

Article 1319. 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 absolute. A qualified
acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was made.
(1262a)

Article 1320. An acceptance may be express or implied. (n)

Article 1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with. (n)

Article 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him. (n)

Article 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. (n)

Article 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
Article 1325. Unless it appears otherwise, business advertisements of things for
sale are not definite offers, but mere invitations to make an offer. (n)

Article 1326. Advertisements for bidders are simply invitations to make


proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears. (n)

Article 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented persons, and deaf-mutes who do not know how to
write. (1263a)

Article 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
(n)

Article 1329. The incapacity declared in article 1327 is subject to the


modifications determined by law, and is understood to be without prejudice
to special disqualifications established in the laws. (1264)

Article 1330. A contract where consent is given through mistake, violence,


intimidation, undue influence, or fraud is voidable. (1265a)

Article 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.

Mistake as to the identity or qualifications of one of the parties will vitiate


consent only when such identity or qualifications have been the principal
cause of the contract.

A simple mistake of account shall give rise to its correction. (1266a)

Article 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. (n)

Article 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
Article 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent. (n)

Article 1335. There is violence when in order to wrest consent, serious or


irresistible force is employed.

There is intimidation when one of the contracting parties is compelled by a


reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants
or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind.

A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent. (1267a)

Article 1336. Violence or intimidation shall annul the obligation, although it


may have been employed by a third person who did not take part in the
contract. (1268)

Article 1337. There is undue influence when a person takes improper


advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between the
parties, or the fact that the person alleged to have been unduly influenced
was suffering from mental weakness, or was ignorant or in financial distress. (n)

Article 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. (1269)

Article 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)

Article 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)

Article 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's special
knowledge. (n)
Article 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same
is mutual. (n)

Article 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)

Article 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.

Incidental fraud only obliges the person employing it to pay damages. (1270)

Article 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. (n)

Article 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. (n)