OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
LOSS OF A THING DUE
PEOPLE VS. FRANKLIN
 "The rights and liabilities of sureties on a recognizance or bail bond are, in many
respects, different from those of sureties on ordinary bonds or commercial
contracts. The former can discharge themselves from liability by surrendering
their principal; the latter, as a general rule, can only be released by payment of
the debt or perform-ance of the act stipulated.
 Surety bond becomes the legal custodian and jailer of the accused, thereby
assuming the obligation to keep the latter at all times under his surveillance, and
to pro-duce and surrender him to the court upon the latter's demand.
 due to the surety company's fault because it was its duty to do everything and
take all steps necessary to prevent that departure. This could have been
accomplished by seasonably informing the Department of Foreign Affairs and
other agencies of the government of the fact that the accused for whose
pro-visional liberty it had posted a bail bond was facing a criminal charge in a
particular court of the country.
PNCC VS. NLRC
 Obligor shall be released from his obligation when the prestation has become
legally or physically impossible without fault on his part. The supervening
impossibility of performance, based upon some factor independent of the will of
the obligor, releases the obligor from his obligation after restitution of what he
may have received, if any, in advance from the other contracting party; 8 the
obligor incurs no liability for damages for his inability to perform.
PNCC VS CA
 Article 1267 of the New Civil Code provides that when the service has become
so difficult as to manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. This article, which
enunciates the doctrine of unforeseen events, is not, however an absolute
application of the principle of rebus sic stantibus, which would endanger the
security of contractual relations.
 The parties to the contract must be presumed to have assumed the risks of
unfavorable developments. It is therefore only in absolutely exceptional chances
of circumstances that equity demands assistance for the debtor.
 The principle of rebus sic stantibus neither fits in with the facts of the case. Under
this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract also ceases to exist.
LAGUNA TAYABAS BUS COMPANY VS MANABAT
 Art. 1680. The lessee shall have no right to a reduction of the rent on account of the sterility
of the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he
shall have such right in case of the loss of more than one-half of the fruits through
extraordinary and unforeseen fortuitous events, save always when there is a specific
stipulation to the contrary.
 Extraordinary fortuitous events are understood to be: fire, war, pestilence,
unusual flood, locusts, earthquake, or others which are uncommon, and which the
contracting parties could not have reasonably foreseen.
 Article 1680, it will be observed is a special provision for leases of rural lands.
No other legal provision makes it applicable to ordinary leases. Had theintention
of the lawmakers been so, they would have placed the article among the general
provisions on lease. Nor can the article be applied analogously to ordinary leases,
for precisely because of its special character, it was meant to apply only to a
special specie of lease.
 It is a provision of social justice designed to relieve poor farmers from the harsh
consequences of their contracts with rich landowners. And taken in that light, the
article provides no refuge to lessees whose financial standing or social position is
equal to, or even better than, the lessor as in the case at bar.
 Even if the cited article were a general rule on lease, its provisions nevertheless
do not extend to petitioners. One of its requisites is that the cause of loss of the
fruits of the leased property must be an "extraordinary and unforeseen fortuitous
event." The circumstances of the instant case fail to satisfy such requisite
OCCENA VS JABSON
 If the prayer of the private respondent is to be released from its contractual
obligations on account of the fact that the prestation has become beyond the
contemplation of the parties, then private respondent can rely on said provision of
the civil code.
 But the prayer of the private respondent was for the modification of their valid
contract.
 The above-cited civil code provision does not grant the court the power to
remake, modify, or revise the contract or to fix the division of the shares between
the parties as contractually stipulated with the force of law between the parties.

 Therefore, private respondent’s complaint for modification of its contract with
petitioner must be dismissed.
NAGA TELEPHONE CO. VS CA
 Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, the term "service" should be
understood as referring to the "performance" of the obligation.
 According to Tolentino, Article 1267 states in our law the doctrine of unforseen
events.
 This is said to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist the contract also
ceases to exist.
 Considering practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to relief in favor of
the party prejudiced.
 The Court, therefore, release the parties from their correlative obligations under
the contract. However, the disposition of the present controversy does not end
here. To allow withdrawal would prejudice the public.
 Rather, the Court requires, as ordered by the trial court: 1) petitioners to pay
private respondent for the use of its posts and in other places where petitioners
use private respondent's post; and 2)private respondent to pay petitioner the
monthly dues of all its telephones at the same rate being paid by the public. The
peculiar circumstances of the present case, as distinguished further from the
Occeña case, necessitates exercise of a equity jurisdiction.
 ". . . In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to avoid
unjust enrichment by appellant at the expense of plaintiff . . . "
MAGAT VS CA
 The law provides that when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.
 Here in the case, the denial of permit to import resulted the non compliance of the
obligation and the inability to secure the letter of credit.
CONDONATION /REMISSION OF DEBT
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
YAM VS CA
 The appointment of a receiver operates to suspend the authority of a corporation
and of its directors and officers over its property and effects, such authority being
reposed in the receiver.
 Sobrepeñas has no authority to condone the debt. The notation on the voucher
covering the check payment that a “full payment of IGLF loan” was made does
not bind respondent.
 It would have been different if the notated appeared in the receipt issued by the
corporation through its receiver, which would be an admission against interest.
 Express condonation must comply the forms of donation. Where the value
exceeds Php 5,000, the donation and acceptance must be made in writing;
otherwise, void.
TRANS-PACIFIC VS CA
 Art 1271 : the delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor implies the renunciation of the action
which the former had against the latter.
 The presumption created by Art 1271 is not conclusive but merely prima facie. If
there be no evidence on the contrary the presumption stands. Conversely, the
presumption loses its legal efficacy in the face of proof or evidence to the
contrary
 The rationale for allowing presumption of renunciation in delivery of a private
instrument is that , unlike a public document, there could be just one copy of the
evidence of credit.
 Where several originals are made out of a private document, the intendment of
the law would thus be to refer to the delivery of the original original rather than
to the original duplicate of which the debtor would normally retain a copy.
EXTINGUISHMENT OF OBLIGATION
GAN TION VS CA
 Compensation: possible only when two parties are each other’s creditor and
debtor
PNB VS VDA. DE ONG ACERO

 There being no indebtedness to PNB on Isabela’s part there is in consequence no
occasion to speak of any mutual set-off or compensation whether it be legal
which automatically occurs by operation of law or voluntary which can only take
place by agreement of the parties which ISABELA did not agree upon which was
attested by lack of evidence
 Since the record reveals that the application was attempted to be made by PNB
on Feb 1980, that essayed application was ineffectual and futile because at that
time, the deposit was already in custodial egis, notice of garnishment thereof
having been served on PNB.
FRANCIA VS IAC
 There can be no offsetting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the tax being
collected.
 The collection of a tax cannot await the results of a lawsuit against the
government. Internal revenue taxes cannot be the subject of compensation.
 The Government and the taxpayer are not mutually creditors and debtors of each
other under Article 1278 of the Civil Code and a claim of taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
MONDRAGON VS IAC
 Petitioners act of withholding respondents service/fees/commissions and applying
them to latter’s outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law
between the parties.
 Compensation is a mode of extinguishing to the concurrence of amount the
obligations of persons who in their own right and as principals are reciprocally
debtors and creditors of each other.
 Legal compensation takes place by operation of law when all the requisites are
present as opposed to conventional compensation which takes place when the
parties agree to compensate their mutual obligations even in the absence of some
requisites.
 Legal compensation requires the concurrence of the following conditions
1. Each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
2. That both debts consist in a sum of money or if the thing due are
consumable, they be of same kind and also of the same quality if the latter
has been stated
3. Two debts due
4. They be liquidated and demandable
REPUBLIC VS DE LOS ANGELES
 Compensation of debt arises even without proof of liquidation of claim where
claim is undisputed
 Proof of liquidation of claim in order that there be compensation of debts, is
proper if such claim is disputed. But if claim is undisputed as in the case at bar,
the statement is sufficient and no other proof may be required.
SOLINAP VS DEL ROSARIO
 For compensation to take place, both obligations must be certain and liquidated
 Petitioner’s claim against respondent is still pending determination by the court.
Claim is disputed in both factual and legal grouns.
 Mialhe vs Halili—compensation cannot take place where one’s claim against the
other is still subject to court litigation. It is a requirement, for compensation to
take place that the amount involved be certain and liquidated
SYSIP VS CA
 Compensation cannot take place where with respect to the money involved in the
estafa case, the complainant was merely acting as agent of another.
 In set-off two persons must in their own right be creditor and debtor of each
other.
 Compensation cant take place since evidence shows that Jose Lapuz is only an
agent of Albert Smith/Dr.Dill.
 Compensation takes place only when two persons in their own right are debtors
and creditors of each other and each one of the obligor is bound.
 Lapuz did not consent to the obligation with petitioner’s obligation to pay 500
shares
COMPANIA MARITIMA VS CA
 For compensation to take place, one of the elements necessary is that debts be
liquidated.

 In this case, all elements for compensation to take place were not present on the
date of dispossession. . The amount expended for repairs and improvements had
yet to be determined by TC
 Although compensation by operation of law cannot take place as between
Republic and Pan oriental by specific pronouncement of this court, rentals
payable bby Pan oriental should be deducted from sum of useful expenses plus
legal interest.
INTERNATIONAL CORPORATE BANK VS IAC
 There can be no doubt that petitioner is indebted to private respondent in the
amount of P1,062,063.83 representing the proceeds of her money market
investment.
 This is admitted. But whether private respondent is indebted to petitioner in the
amount of P6.81 million representing the deficiency balance after the foreclosure
of the mortgage executed to secure the loan extended to her, is vigorously
disputed.
 This circumstance prevents legal compensation from taking place
 Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim
for deficiency are still in question, so much so that it is evident, that the
requirement of Article 1279 that the debts must be liquidated and demandable has
not yet been met.
 For this reason, legal compensation cannot take place under Article 1290 of the
Civil Code.
ONG VS CA
 Fermin claims the balance of his debt is deemed set off by the price of the zippers
in the possession of Mariano, who had the obligation to return them to him.
 The flaw in this argument is the assumption that Mariano had such an obligation,
which has not been proved by Fermin It has already been found that Mariano had
not retained them nor dId he have any need for them as he was in a different
business.
 He had not bought them or otherwise owed their value to Fermin, who was in fact
the obligor.
 Fermin does not deny that he deposited the zippers in Mariano's warehouse
without paying storage fees or any other consIderation.
 The instant case does not certainly satisfy the above because (1) appellant is not a
debtor of appellee, it is only the latter who is indebted to appellant; (2) the debts,
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
even admitting that the delivery of the zippers to plaintiff is a debt, do not both
consist in a sum of money nor are they of the same quality and kind
PIONEER VS CA
 Pioneer has no right to institute and maintain in its own name an action for the
benefit of the reinsurers, it is well settled that an action brought by an attorney-in-
fact in his own name instead of that of the principal will not prosper, and this is
so even where the name of the principal is disclosed in the complaint.
 An Atty-in-fact is not a real party in interest, there is no law permitting an action
to be brought by an atty-in-fact
SILAHIS VS IAC
 Art 1279 among others requires that in order that legal compensation shall take
place, two debts be due and they be liquidated and demandable
 Compensation is not proper where claim of person asserting the set-off against
the other is not clear nor liquidated
 Compensation cannot extend to unliquidated, disputed claim existing from breach
of contract
 Commission is vigorously disputed. The circumstances prevents legal
compensation from taking place
SESBRENO VS CA
 On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A
was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of
Agreement" with Philfinance, where Delta acknowledged that the relevant
promissory notes were "to be offsetted (sic) against [Philfinance] PN No. 143-A
upon co-terminal maturity."
 . It is a firmly settled doctrine that the rights of an assignee are not any greater
that the rights of the assignor, since the assignee is merely substituted in the place
of the assignor 20 and that the assignee acquires his rights subject to the equities
— i.e., the defenses — which the debtor could have set up against the original
assignor before notice of the assignment was given to the debtor.
 Art. 1285. The debtor who has consented to the assignment of rights made by
a creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the
assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the cession,
but not of subsequent ones.
 If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment.
 Article 1626 of the same code states that: "the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the
obligation."
In Sison v. Yap-Tico,21 the Court explained that:
 [n]o man is bound to remain a debtor; he may pay to him with whom he
contacted to pay; and if he pay before notice that his debt has been assigned, the
law holds him exonerated, for the reason that it is the duty of the person who has
acquired a title by transfer to demand payment of the debt, to give his debt or
notice.
 At the time that Delta was first put to notice of the assignment in petitioner's
favor on 14 July 1981, DMC PN No. 2731 had already been discharged by
compensation. Since the assignor Philfinance could not have then compelled
payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of
Philfinance, is similarly disabled from collecting from Delta the portion of the
Note assigned to him.
MINDANAO PORTLAND CEMENT VS CA
 petitioner and respondent were creditors and debtors of each other, their debts to
each other consisting in final and executory judgments of the Court of First
Instance in two (2) separate cases, ordering the payment to each other of the sum
of P10,000.00 by way of attorney's fees. The obligations, therefore, respectively
offset each other, compensation having taken effect by operation of law and
extinguished both debts to the concurrent amount of P10,000.00, pursuant to the
provisions of Arts. 1278, 1279 and 1290 of the Civil Code. since all the requisites
provided in Art. 1279 of the said Code for automatic compensation "even though
the creditors and debtors are not... aware of the compensation" were duly present
 "ART. 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
 "ART. 1279. In order that compensation may be proper, it is necessary:
 (1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 (2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
 (3) That the two debts be due;
 (4) That they be liquidated and demandable;
 (5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
 "ART. 1290. When all the requisites mentioned in Art. 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation."
EGV REALTY VS CA
 Compensation or offset under the New Civil Code takes place only when two
persons or entities in their own rights, are creditors and debtors of each other.
(Art. 1278).
 A distinction must be made between a debt and a mere claim.
 A debt is an amount actually ascertained. It is a claim which has been formally
passed upon by the courts or quasi-judicial bodies to which it can in law be
submitted and has been declared to be a debt.
 A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and
must pass thru the process prescribed by law before it develops into what is
properly called a debt.
 Absent, however, any such categorical admission by an obligor or final
adjudication, no compensation or off-set can take place.
 Unless admitted by a debtor himself, the conclusion that he is in truth indebted to
another cannot be definitely and finally pronounced, no matter how convinced he
may be from the examination of the pertinent records of the validity of that
conclusion the indebtedness must be one that is admitted by the alleged debtor or
pronounced by final judgment of a competent court or in this case by the
Commission.
PNB MADECOR VS UY
 There could not be any compensation between PNEI’s receivables and PNB
Madecor and the latter’s obligation to the former because PNB Madecor’s
supposed debt to PNEI is the subject of attachment proceedings initiated by third
party Uy. This is a controversy that would prevent legal compensation from
taking place per the requirements set forth in Art 1279 of CC.

HERMENEGILDO TRINIDAD VS ACAPULCO
 The claim of respondent that there could be no legal compensation in this case as
one of the obligations consists of delivery of a car and not a sum of money must
also fail.
 Respondent sold the car to petitioner on March 4, 1991 for P500,000.00 while
she filed her complaint for nullification of the sale only on May 6, 1991.
 As legal compensation takes place ipso jure, and retroacts to the date when its
requisites are fulfilled, legal compensation has already taken place at the time of
the sale. At such time, petitioner owed respondent the sum of P500,000.00 which
is the price of the vehicle.
BPI VS CA
 In Serrano vs. Central Bank of the Philippines, --bank deposits are in the nature
of irregular deposits; they are really loans because they earn interest. The
relationship then between a depositor and a bank is one of creditor and debtor.
 The account was proved and established to belong to Eastern even if it was
deposited in the names of Lim and Velasco.
 As the real creditor of the bank, Eastern has the right to withdraw it or to demand
payment thereof. BPI cannot be relieved of its duty to pay Eastern simply
because it already allowed the heirs of Velasco to withdraw the whole balance of
the account. The petitioner should not have allowed such withdrawal because it
had admitted in the Holdout Agreement the questioned ownership of the money
deposited in the account.
 We have ruled that when the ownership of a particular property is disputed, the
determination by a probate court of whether that property is included in the estate
of a deceased is merely provisional in character and cannot be the subject of
execution. 24
 Because the ownership of the deposit remained undetermined, BPI, as the debtor
with respect thereto, had no right to pay to persons other than those in whose
favor the obligation was constituted or whose right or authority to receive
payment is indisputable.
 The payment of the money deposited with BPI that will extinguish its obligation
to the creditor-depositor is payment to the person of the creditor or to one
authorized by him or by the law to receive it.
 Payment made by the debtor to the wrong party does not extinguish the
obligation as to the creditor who is without fault or negligence, even if the debtor
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
acted in utmost good faith and by mistake as to the person of the creditor, or
through error induced by fraud of a third person.
PEREZ VS CA
 Insurance is a contract whereby, for a stipulated consideration, one party
undertakes to compensate the other for loss on a specified subject by specified
perils.
 A contract, on the other hand, is a meeting of the minds between two persons
whereby one binds himself, with respect to the other to give something or to
render some service.
 there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has
been paid and the policy delivered to and accepted by me/us in person while
I/We, am/are in good health.
 The assent of private respondent BF Lifeman Insurance Corporation therefore
was not given when it merely received the application form and all the requisite
supporting papers of the applicant.
 Its assent was given when it issues a corresponding policy to the applicant. Under
the abovementioned provision, it is only when the applicant pays the premium
and receives and accepts the policy while he is in good health that the contract of
insurance is deemed to have been perfected.
NOVATION
LAND BANK VS CA
 None of the requirements of novation either of subject matter of bond
agreement/partial subrogation of oblige or creditor is visible
 Unilateral novation of respondents was not inserted in new bearer bond
certificates
 Negligence cannot be set up against the government
REYES VS CA
 Novation requisites
1. Previous valid obligation
2. Agreement of parties: new contract
 OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
3. Extinguishment of old contract - Initiative of debtor
4. Validity of new contract - Acceptance by 3P
 Absence of new contract extinguishing the old: destroys the possibility of  Consent of creditor : inidispensible
novation by conventional subrogaton  Criminal liability of Estafa is already committed: it is not affected by subsequent
 Novation by substituting of creditor requires the agreement among 3 parties novation
concerned
1. Original creditor FOUNDATION PECIALIST VS BENTOVAL
2. Debtor
3. New Creditor  Novation : one of the modes of extinguishing obligation : done by
 Novation is never presumed there must be an express retention to novate substituting/change of obligation by a subsequent one
 Laches/Failure neglect for an unreasonable & unexplained length of time : lack  Obligation to pay sum of money is not novated by an instrument that expressly
of due diligence recognizes the old, changes only the terms of payment, adds other obligations not
 Novation by substitution of debtor must always be with consent of the credito incompatible with the old one
 Mere circumstance of creditor receiving payments from 3P : Acquisced to  Waiver must be couched in clear and unequivocal terms which leave no doubt :
assume obligation of debtor; Where no agreement = Judicial relation of co- intention of party to give up right or benefit
debtorship or suretyship  Mere failure to pay debt (x) enough to justify an attachment on debtor’s
properties
QUINTO VS PEOPLE
FUA VS YAP
 Novation may be extinctive/modificatory
 Extinctive : objective/real : substituting debtor/subrogating 3P to rights of  Novation by subsequent agreement: appellants liability under judgment in civil
creditor case: extinguished by statement evidenced by mortgage executed by them in
 Dual Function of novation favor of appellee
1. Extinguish the old  Although mortgage did not expressly cancel old obligation; this was impliedly
2. Substitute : new one novated by reason of incompatibility resulting from the facts that judgment
 Novation is never presumed money was payable at time did not provide atts fees and was not secured
 Extinguishment of old obligation by the new is a necessary element of novation  New oblgation is payable on installments
(express/implied)  Later agreement did not merely extend time to pay judgment it also provided for
 Test of incompatibility : WON two obligations can stand together each having its the change in terms of payment and the security requirement
independent existence  MORRAN DISSENT : (x) incompatible simply gave them more time & a
 Incompatibility must take place in any of the essential elements of the obligation different method of payment
(consent/object/cause/principal conditions) otherwise change is merely
MILLAR VS CA
modificatory
 Two forms of novation by substituting Debtor  defense of implied novation requires clear and convincing proof of
1. Expromission incompatibility between two obligations
- Initiative (x) come from debtor  Test is whether two obligations can stand together
- May be done w/o his knowledge  Only those essential and principal changes introduced by new obligation
- 3P & creditor producing alteration or modification = implied novation
2. Delegacion

 Mere reduction of amount due (x) sufficient incompatibility : reduction due to
partial payment
SANDICO VS PAGUING
 Payment by respondent of lesser amount, accepted by petitioner without protest
or objection and acknowledged them as in full satisfaction of money judgment.
Completely extinguished judgment debt & released the respondent from
pecuniary liability
 Novation : 2 stipulations (1) Extinguish old obligation (2) Substitute a new one in
its place
 To sustain novation : necessitates that some be so declared in unequivocal terms
clearly and unmistakably show by express agreement by equivalent import ; that
there is substantial incompatibility
 Terms of receipt : clear and definite : neither expressly nor impliedly declares
that reduction of money judgment was conditioned upon respondent’s reason and
reopening of irrigation cannal: it merely says : comply immediately
NPC VS JUDGE DAYRIT
 Novation is never presumed but must be explicitly stated
 No novation in absence of explicit novation/incompatibility on every point
between old and new argument
 Nothing in 1982 agreement which supports petitioner’s contention
 Art 1292 : in order that an obligation may be extinguished by another which
substitutes the same it is imperative that it be so declared in unequivocal terms
that old and new obligations be on every point incompatible with each other.
COCHINGYAN VS R&B SURETY AND INSURANCE CO
 Novation is the extinguishment of an obligation by substitution/change of
obligation by subsequent one which terminates it either by changing its
objects/principal conditions /substituting 3p to rights of creditor
 Novation is never presumed
 If old debtor (x) released = no novation occurs and 3P who assumed obligation :
co-debtor or surety
 Novation is not implied when parties to new obligation expressly negated lapsing
of old
 Surety bond was not novated by trust agreement. Both agreements can co-exist
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
PEOPLE’S BANK AND TRUST COMPANY VS SYVEL’S INCORPORATION,
ANTONIO SYYAP AND ANGEL SYYAP
 Absence of existence of explicit novation/incompatibility between old and new
agreements
 Contract on its face (x) show existence of explicit novation nor incompatibility
 Novation : not intended = real estate mortagbe was evidently taken as additional
security for performance of contracts
 Fraudulent concealment of property : to delay and defraud creditors : attachment
BROADWWAY CENTRUM CONDOMINIUM CORP VS TROPICAL HUT
FOOD MARKET & CA
 Novation through:
 change of object/principal condition = real/objective novation
 Change of person : Subjective or personal
 Mixed : Change of both
 If objective novation is to take place it is essential that new obligation expressly
declare old obligation to be extinguished/new obligation is compatible with the
old
 Will to novate : Total/partial : must appear: express agreement of parties
 Reduction of rent: “on a trial basis”
 Any reduction in rental extended is merely temporary suspension of original rate
of rental stipulated and is not an amendment thereto
AJAX MARKETING VS CA
 Novation will not be allowed unless it is clearly shown by express agreement/by
equal import
 To effect subjective novation by change of person : debtor : it is necessary that
old debtor be released expressly from obligation & 3 P/new debtor assumes his
place in the relation
 No novation without release as to 3P who assumed debtor’s obligation: becomes
merely a codebtor or surety
 Petitioner AJAX only became a co-debtor surety
 Without express release of debtor from the obligation, any 3p who may thereafter
assume obligation = considered merely as co-debtor or surety
CRUZ VS CA

 Requisite of novation : PIEN
 MOA falls short of producing novation : it does not express clear intent to
dissolve old obligation as a consideration for the emergence of a new one
 MOA created an obligation on part of such co-owner to share with others :
Proceeds of sale = (x) incompatibility
 Legal effects of contracts : determined by extracting intention of parties from the
language they used & from contemporaneous and subsequent acts
 MOA (x) make petitioners co-owners of disputed parcels of land
DEGANOS VS PEOPLE
 One of the parties in a contract of sale obligates himself to transfer ownership of
& deliver determinate thing while the other party obligates himself to express
terms of kasunduan
 Partial payment of deganos (x) novation of original contractual relationship of
agency to sell. It is only slight modification and old obligation still prevails
 Novation (x) ground for extinguishment of criminal liability : only state may
validly waive criminal action
 Novation may only be either to prevent rise of criminal liability / cast doubt on
true nature of original base transaction
RODRIGUEZ VS REYES
 Mortgage is merely an accessory undertaking for convience & security of
mortgage creditor and exist independently of obligation to pay debt secured
 Buyer cannot obligate himself to replace debtor in principal oligation nor do so in
law without creditor’s consent.
 Caveat emptor applies only to execution sales
 Obligation o discharge mortgage indebtedness remained in shoulders of original
debtor
 Bid must be understood & taken to conform to normal practice
ONG VS BOGNABAL
 Novation is never presumed unless it is clearly show either by express agreement
of parties or by acts of equivalent import, defense will never be allowed
 Assuming that there was indeed a novation, such condition is deemed fulfilled
because of Art 1186 : the condition is deemed fulfilled when obligor voluntarily
prevents its fulfillment
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
SERVICEWIDE SPECIALISTS VS IAC
 Since it was neither established nor shown that Siton was released from
responsibility under the promissory note, the same does not constitute novation
by substitution of debtors under Article 1293 of the Civil Code.
 Likewise, the fact that petitioner company accepts payments from a third person
like respondent de Dumo, who has assumed the obligation, will result merely to
the addition of debtors and not novation. Hence, the creditor may therefore
enforce the obligation against both debtors.
LICAROZ VS GATMAITAN

 This provision which contemplates the signed conformity of Anglo-Asean Bank,
taken together with the preambulatory clause leads to the conclusion that both
parties intended that Anglo-Asean Bank should signify its agreement to the
MOA.
 The extinguishment of the old obligation is the effect of the establishment of a
contract for conventional subrogation. It is not a requisite without which a
contract for conventional subrogation may not be created.
 provisions may not simply be disregarded or dismissed as superfluous
 the intention of the parties to treat the MOA as embodying a conventional
subrogation is shown not only by the "whereas clause" but also by "WITH OUR
CONFORME" reserved for Anglo-Asean Bank.
 These provisions may not simply be dismissed as superfluous.
 The various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly." It is
mandated that "(I)n the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be adopted as will
give effect to all." Contracts should be so construed as to harmonize and give
effect to the different provisions thereof.
BPI VS DOMINGO
 OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 Under Art 1293, there are two forms of novation by substitutiong person who is a  When students breach that supposed contract by refusing to attend classes,
debtor (1) expromision and delecacion. preferring to take to the streets to mount a noisy demonstration, the latter may
 In order to give novation legal effect, law requires that creditor should consent to cancel the contract and close its doors
the substitution of a new debtor
 Consent must be given expressly for the reason that since novation extinguishes REPUBLIC V. PLDT
the personality of the first debtor, who is substituted by new one, it implies on
part of the credtor a waiver of the right that he had before the novation which  While the Republic may not compel the PLDT to celebrate a contract with it, the
waiver must be express under the principle that remuntitio non praesumitor as Republic may, in the exercise of the sovereign power of eminent domain, require
recognized by law in declaring that a waiver of right may not be performed the telephone company to permit interconnection of the government telephone
unless the will to waive is indisputably shown by him who holds rights system and that of the PLDT, as the needs of the government service may
require, subject to the payment of just compensation to be determined by the
CONTRACTS court.”
BATCHELDER V. CB
CUI V. ARELLANO UNIVERSITY
 Obligations arise from (1) Law (2) Contracts (3) Quasi-contracts (4) Acts or
 The memorandum of the Director of Private Schools is not a law where the
omissions punished by law (5) Quasi-delicts.
provision set therein was advisory and not mandatory in nature.
 Obligation arising from law are not presumed.
 Moreover, the stipulation in question, asking previous students to pay back the
 A central bank circular may have the force and effect of law especially when
scholarship grant if they transfer before graduation, is contrary to public policy,
issued in pursuance of a quasi-legislative power. That of itself, however is no
sound policy and good morals or tends clearly to undermine the security of
justification to conclude that it has thereby assumed an obligation.
individual rights and hence, null and void.
 A circular is not equivalent to a contract
SAURA VS SINDICO
CMC VS CA
 Among those that may not be the object of contracts are certain rights of
 When a student registers in a school, it is understood that he is enrolling for the
individuals, which the law and pubic policy have deemed wie to exclude from the
entire school year (elementary and secondary courses, and for the entire semester
commerce of man.
(collegiate course)
 Among them are political rights conferred upon citizens including one’s right to
 The contract between college and student who is enrolled and pays the fees for a
vote, the right to present one’s candidacy to the people and to be voted to public
semester is for the entire semester only, not for the entire course.
office, provided however that all the qualificatons prescribed by law obtain.
 The law does not require a school to see a student through to the completion of
 Art 1347 : all things which are not outside the commerce of men, including future
his course. If school closes or is closd by proper authority at the end of the
things may be object of a contract. All rights which are not intransmissible may
semester, the student has no cause of action for breach of contract against school.
also be object of contracts.
 In this case as compared to Alcuaz et al vs. PSBA, the school closed completely.
No contract may be entered into upon future inheritance except in cases expressly
 Even if it can be supposed that enrollment of student creates an implied binding
authorized by law.
contract with the school to educate him for the entire course, since a contract
All services which are not contrary to law, morals, good customs, public order or
creates reciprocal rights and obligations, the obligation of school to educate the
public policy may likewise be object of contracts
student imply a corresponding obligation on the part of the student to obey the
rules and regulations of the school.
LEAL VS. IAC

 Right to redeem must be expressly stipulated in the contract of sale in order that it
may have legal existence. Right to redeem or repurchase, in absence of an
express agreement as to time, shall last 4 years from date of contract.
 Art 1306 includes that contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided that they
are not contrary to LaMoGPpoPpu
 One such condition which is contrary to public policy is the present prohibition
to self to third parties (perpetual restrictin to the rights of ownership specifically
the owner’s right to freely dispose of his properties)
PAKISTAN INTERNATIONAL AIRLINES V. OPLE
 Labor = Heavily impressed ; public interest
 Counter-balancing the principle of autonomy of contract is the equally general
rule that the provisions of applicable law, especially provisions relating to matters
affected with public interest are presumed written into contract.
 Par 10 of the employment agreement cannot be given effect so as to oust
Philippine agencies and courts of jurisdiction vested upon them by PH law.
NON V. JUDGE DAMES II
 Contract between schools and students (x) ordinary
 It is impressed with public interest: high priority given by constitution to
education
 School cannot refuse to enroll student on simple ground that his contract expires
every sem
 Exclusion of student for academic deficiency where real cause of action for doing
so is related to possible breach of discipline, staging mass action and rally
violates rules of fair play
 Enrollment in another school (x) bar for re-admission
 Par 137 : merely clarifies that a student enrolls for an entire semester, it serves to
protect school in tuition fee collection.
DE LUNA V. ABRIGO
 Onerous donation : subject to burdens, charges/future services -> equal/ greater
in value of thing alienated
 Donation : conditional : donee contruct (chapel, nursery, and kindergarten)
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 Art 733: donations w/an onerous cause shall be governed by rules on contract &
remuneratory donations by the provisions of the present title as regards that
portion which exceeds the value of burden imposed
 Par 11: revival of donation intervivos ::not contrary to LaMoGPpoPpu
 Judicial intervention necessary : not for the purpose of obtaining judicial
declaration rescinding contract already deemed rescinded but in order to
determine WON rescission was proper
LLORIN V. CA
 Escalation clause : valid : contract fixes a base price but contains a provision in
event of specified cost increase
 Escalation Clause (x) substantively unconscionable
 For a stipulation clause to be valid it must provide
a) Increase of interest: if increase by law or MB
b) Include a provision for reduction of stipulated interest in event that
applicable max is reduced by law or MB
 Art 1408 : mutuality of contracts
 De-escalation clause : indispensable requisite to validity and enforceability of
escalation clause
 Notwithstanding : It is admitted by petitioner that APEX unilaterally and actually
decreased interest charges imposed.
PALANCA V. CA
 Stipulation violates RA 529: an act to assure uniform value to PH & coin
currency : Cuenco law
 Such law prohibits
a) Giving of right to require payment in specified currency other than PH
currency
b) Giving oblige : right to require payment “in any amount of money of ph
measured thereby “
 RA mandates money obligations to be entered into in PH : In PH currency
 Policy of law: preserve the value of pesos
ERMITANO V. CA
 Contract of adhesion (x) void in themselves
 But court will no hesistate to rule out blind adherence if they prove to be one
sided

 Stipulation : card holder
a) Give written notice to BECC
b) BECC must notify its member-establishments of such laws/theft
 Prompt notice of card holder : enough to relieve former of any liability
REGINO V. PANGASINAN COLLEGE
 Terms of S-S contract : defined at the moment of inception: upon enrollment
 Assailed revenue : mid-sem : exacted dance party : condition for taking finals---
not part of contract hence cannot be unilaterally imposed
DUNCAN ASSOCIATION V. GLAXO
 Glaxo’s policy of prohibiting an employee from relationship with an employee of
a competitor company : valid exercise of management prerogative
 Glaxo has right to guard its trade secrets, manufacturing formulas, and
information from competitors
 Prohibition to employees : deemed reasonable
STAR PAPER CORP V. SIMBOL
 Exercise of management prerogative must be reasonable
 Policy violated Art 136 of labor code ; failure of petitioners to prove legitimate
business concern in imposing policy cannot prejudice employee’s right to be free
from arbitrary discrimination based upon stereotypes of married persons working
together in one company
AZNAR V. CITIBANK
 Rules on Electronic Evidence, sections of Rule 5 read:
 Section 1. Burden of proving authenticity. – The person seeking to introduce an
electronic document in any legal proceeding has the burden of proving its
authenticity in the manner provided in this Rule.
 Section 2. Manner of authentication. – Before any private electronic document
offered as authentic is received in evidence, its authenticity must be proved by
any of the following means:
 (a) by evidence that it had been digitally signed by the person purported to have
signed the same;
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 (b) by evidence that other appropriate security procedures or devices as may be
authorized by the Supreme Court or by law for authentication of electronic
documents were applied to the document; or
 (c) by other evidence showing its integrity and reliability to the satisfaction of the
judge.
 Indeed, Aznar failed to demonstrate how the information reflected on the print-
out was generated and how the said information could be relied upon as true.
MACALINAO V. BPI
 We need not unsettle the principle that stipulated interest rates of 3% per month
and higher are excessive, iniquitous and unconscionable and exhorbitant. Such
stipulations are void for being contrary to morals if not against law
 CB 905-82: nothing therein grants lenders carte blanche authority to raise interest
to levels which would enslave the borrrowers or lead to the hemorrhaging of their
assets
 Since stipulation on the interest is void, it is as if there was no express contract
thereon. Court lowered interest rate :24% per annum
CASTRO V. TAN
 No, independently of the doctrine of pari delicto, the petitioner cannot have the
sale annulled. While the vendee was an alien at the time of sale, the land has
since become the property, of respondent Joaquin Teng, a naturalized Philippine
citizen, who is constitutionally qualified to own a land.
TIU V. PLATINUM PLANS
 the non-involvement clause has a time limit: two years from the time petitioner’s
employment with respondent ends. It is also limited as to trade, since it only
prohibits petitioner from engaging in any pre-need business akin to respondent’s.
 involvement clause not contrary to public welfare and not greater than is
necessary to afford a fair and reasonable protection to respondent. Hence the
restraint is valid and such stipulation prevails.
HEIRS OF UY EK LIONG V. CASTILLO
 Although executed on the same day, it cannot likewise be gainsaid that the
Agreement and the Kasunduan are independent contracts, with parties, objects
and causes different from that of the other.

 Defined as a meeting of the minds between two persons whereby one binds
himself, with respect to the other to give something or to render some service.
 a contract requires the concurrence of the following requisites: (a) consent of the
contracting parties; (b) object certain which is the subject matter of the contract;
and, (c) cause of the obligation which is established.
 Already partially executed with respondents’ receipt of P1,000.00 from Manuel
upon the execution thereof, the Kasunduan simply concerned the sale of the
former’s 60% share in the subject parcel, less the 1,750-square meter portion to
be retained, for the agreed consideration of P180,000.00. As a notarized
document that carries the evidentiary weight conferred upon it with respect to its
due execution,51 the Kasunduan was shown to have been signed by respondents
with full knowledge of its contents, as may be gleaned from the testimonies
elicited from Philip52 and Leovina
ADVOCATES OF TRUTH IN LENDING V. BSP
 CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity;" that "a CB Circular cannot repeal a
law, [for] only a law can repeal another law;" that "by virtue of CB Circular No.
905, the Usury Law has been rendered ineffective;" and "Usury has been legally
non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."
 By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
freedom of contract to agree freely on the rate of interest.
 the lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest. It is settled that nothing in CB
Circular No. 905 grants lenders a carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets. Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the law.
SPS. MALLARI V. PRUDENTIAL BANK
 Unconscionable interest rates – The SC has ruled in the following cases that the
interest is unconscionable: 3% and 3.81% per month on a P10 Million loan
(Toring vs. Sps. Ganzon-Olan, 2008); 66% per annum or 5.5% per month on a
P500 thousand loan (Medel vs. Court of Appeals, 1998) and; 7% and 5% or 84%
and 60% per annum (Chua vs. Timan, 2008).
 The Court has also ruled affirmed in a plethora of cases that stipulated interest
rates of 3% per month and higher are excessive, unconscionable and exorbitant.
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 Conscionable interest rates – In this case 23% per annum or 2% per month as
agreed upon by petitioner and respondent bank is NOT unconscionable. It is
much lower than the above mentioned unconscionable interest rates and there is
no similarity of factual milieu.
CORPUS V. CA
 absence of an express contract for attorney's fees between respondent David and
petitioner Corpus is no argument against the payment of attorney's fees,
considering their close relationship which signifies mutual trust and confidence
between them.
 Moreover, the payment of attorney's fees to respondent David may also be
justified by virtue of the innominate contract of facio ut des (I do and you give
which is based on the principle that "no one shall unjustly enrich himself at the
expense of another." innominate contracts have been elevated to a codal
provision in the New Civil Code by providing under Article 1307 that such
contracts shall be regulated by the stipulations of the parties, by the general
provisions or principles of obligations and contracts, by the rules governing the
most analogous nominate contracts, and by the customs of the people.
 While there was no express contract between the parties for the payment of
attorney's fees, the fact remains that respondent David rendered legal services to
petitioner Corpus and therefore as aforestated, is entitled to compensation under
the innominate contract of facio lit des And such being the case, respondent
David is entitled to a reasonable compensation.
LAO LIM V. CA
 Compromise agreement invalid
 Art 1182: fulfillment of the conditions depends upon the sole will of debtor
(lessee), conditional obligation is void.
 Thus stipulation should be construed that contract of lessee is for the definite
period of 3 years and the renewal of the contract will only take effect if both
parties decided to renew lease
PNB V. CA
 The unilateral action of the PNB in increasing the interest rate on the private
respondent's loan violated the mutuality of contracts ordained in Article 1308 of
the Civil Code: The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

 In order that obligations arising from contracts may have the force or law
between the parties, there must be mutuality between the parties based on their
essential equality.
 A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is void
FLORENDO V. CA
 To allay fears that respondent bank will inordinately be prejudiced by being stuck
with this "sweetheart loan" at patently concessionary interest rates, which
according to respondent bank is the "sweetest deal" anyone could obtain and is an
act of generosity considering that in 1985 lending rates in the banking industry
were peaking well over 30% p.a., 17 we need only point out that the bank had the
option to impose in its loan contracts the condition that resignation of an
employee-borrower would be a ground for escalation.
 The fact is it did not. Hence, it must live with such omission. And it would be
totally unfair to now impose said condition, not to mention that it would violate
the principle of mutuality of consent in contracts.
 It goes without saying that such escalation ground can be included in future
contracts — not to agreements already validly entered into.
SAMPAGUITA BUILDERS V. PNB
 Sampaguita’s accessory duty to pay interest did not give PNB unrestrained
freedom to charge any rate other than that which was agreed upon. No
interest shall be due unless expressly stipulated in writing.
 Unilateral determination and imposition of increase is violative of principle
of mutuality of contracts under 1308
 Circular that lifted ceiling of interest rates of usury law did not authorize
either party to unilaterally raise interest without the other’s consent
VELASCO V. CA
 Again, it is thus obvious that GSIS assumed ownership of the houses built by
petitioners and was benefited by the same, and the fact that it has not collected
any payment from the "house owners" or the construction of the houses
respectively occupied by them is of no moment insofar as its liability to
petitioners is concerned.
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 Surely, it is not pretended that those "house owners" would be allowed to enrich
themselves at the expense of petitioners. Indeed, the term "house owners" is
inappropriate, if only because in Paragraph 16 of its Comment on the petition
herein, GSIS unequivocally state that "GSIS foreclosed the properties including
all improvements (the houses in 1970" and, thereby, became the owner of said
houses.
 We so hold that even in equity alone, GSIS should pay the petitioners. After all, it
admits it has not collected from the ones who appear to be the buyers thereof,
albeit it must be collecting the installments on the lots
Kauffman v PNB
 Article 1257 of the Civil Code provides that contracts are productive of effects
only between the parties who execute them. The said article likewise provides an
exception:"Should the contract contain any stipulation in favor of a third person,
he may demand its fulfillment, provided he has given notice of his acceptance to
the person bound before the stipulation has been revoked." (Art. 1257, par. 2,
Civ. Code.)
 The fairest test, in this jurisdiction at least, whereby to determine whether the
interest of a third person in a contract is a stipulation pour autrui, or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their
contract.
 undeniable that the bank's promise to cause a definite sum of money to be paid to
the plaintiff in New York City is a stipulation in his favor and the circumstances
under which that promise was given disclose an evident intention on the part of
the contracting parties that the plaintiff should have that money upon demand in
New York City. The recognition of this unqualified right in the plaintiff to
receive the money implies in our opinion the right in him to maintain an action to
recover it.
 It will be noted that under the paragraph cited a third person seeking to enforce
compliance with a stipulation in his favor must signify his acceptance before it
has been revoked
Bonifacio Bros vs Mora

 It is fundamental that contracts take effect only between the parties thereto,
except in some specific instances provided by law where the contract contains
some stipulation in favor of a third person.
 “ In the instant case the insurance contract does not contain any words or clauses
to disclose an intent to give any benefit to any repairmen or materialmen in case
of repair of the car in question. The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the said conclusion.
 On the other hand, the "loss payable" clause of the insurance policy stipulates
that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the
H.S. Reyes, Inc. which they intended to benefit.
 The policy in question has been so framed that "Loss, if any, is payable to H.S.
Reyes, Inc.," which unmistakably shows the intention of the parties.
FLORENTINO V. ENCARNACION
 A stipulation pour autrui is a stipulation in favor of a third person conferring a
clear and deliberate favor upon him, and which stipulation is merely a part of a
contract entered into by the parties, neither of whom acted as agent of the third
person, and such third person and demand its fulfillment provoked that he
communicates his to the obligor before it is revoked. 3
 The requisites are:
(1) that the stipulation in favor of a third person should be a part, not the whole,
of the contract;
(2) that the favorable stipulation should not be conditioned or compensated by
any kind of obligation whatever; and
 (3) neither of the contracting bears the legal represented or authorization of third
person.
 To be valid, it must be the purpose and intent of the stipulating parties to benefit
the third person and not merely accidental
 The fairest test to determine whether the interest of third person in a contract is a
stipulation pour autrui or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.
 Since the church already made an acceptance even before the death of Dona
Encarnacion since it (the church) was already in use of the land since time
immemorial (implied acceptance)
○ Specifically 17 years
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 The time for acceptance in cases of stipulation pour autrui is also not limited by
time as long as it is made before the stipulation is revoked
 Therefore, it cannot now be revoked since it has acquired a force of law between
the parties
○ Especially that respondents had kept their peace in 1962 (had knowledge of
the encumbrance fromthis year) and 1963
BANK OF AMERICA V. IAC
 The identity of the beneficiary should be in accordance with the identification
made by KYOWA, and ACTC cannot question that identification as it is not a
party to the arrangement between KYOWA and BANKAMERICA. Hence, the
CA decision was reversed insofar as Bank of America was concerned.
MARIMPERIO V. CA
 In the two Articles it is not the sub-lessee, but the lessor, who can bring the
action. In the instant case, it is clear that the sub-lessee as such cannot maintain
the suit they filed with the trial court.
 In the law of agency "with an undisclosed principa”l, the Civil Code in Article
1883 reads:If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such
persons against the principal.
CAPITAL INSURANCE & SURETY CO., INC. V. CENTRAL AZUCARERA
DEL DANAO TALISAY-SILAY MILLING CO
 The agreement of PNB and respondent does not extend to those not parties in the
contract (such as Talisay)
 Therefore, respondent cannot escape liability by passing the obligation to Talisay
 Petitioner cannot be prejudiced by the terms of the agreement
 However, this does not mean that respondent cannot be indemnified by Talisay
 mere entry in its books is not enough to bind Central Azucarera del Danao, for
had it been so intended, PNB would not have insisted on including in paragraph
10, the phrase "such as in paragraph 9", which qualifies the kind of
acknowledgment or acceptance required before any unpaid account could be
borne by Central Azucarera del Danao.
Barfel Development Corp v CA

PISO bank is not a party to the three (3) contracts which are the subject of the action
for specific performance and damages between the private respondents and petitioners.
The bank which is not a party to the transaction is not an indispensable party.
According to Article 1311 of the Civil Code a contract takes effect between the parties
who made it, and also their assigns and heirs, with certain exceptions provided therein.
Since a contract may be violated only by the parties, thereto as against each other, in
an action upon that contract, the real parties in interest, either as plaintiff or as
defendant, must be parties to said contract.
Therefore, a party who has not taken part in it cannot sue or be sued for performance
or for cancellation thereof, unless he shows that he has a real interest affected thereby.
A real interest has been defined as a present substantial interest, as distinguished from
a mere expectancy or a future, contigent, subordinate or consequential interest.
Mandarin Villa vs. CA
 In this case, private respondent’s BANKARD credit card has an embossed expiry
date of Sept 1990. Clearly it has not yet expired and it was wrongfully dishonored
by the petitioner. Petitioner did not use reasonable care and caution which an
ordinary prudent person would have used in the same situation, hence liable for
negligence.
 Petitioner cannot disclaim its obligation to accept private respondent’s
BANKARD credit card without violating the equitable principle of estoppel.
Miranda Villa Seafood Village is affiliated with BANKARD. In fact, they had an
“Agreement” wherein merchant shall honor validly PCCCI Credit cards
presented provided card is not expired, etc.
 While private respondent may not be a party to the said agreement, the stipulation
conferred in favor of private respondent, a holder of credit card validly issued by
BANKARD. This stipulation is a stipulation pour autri.
SUMMA INSURANCE CORPORATION V. CA & METRO PORT SERVICE,
INC.
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 Since the petitioner was subrogated to the rights of Semirara (as consignee), it
must be first determined the relation between the consignee and the arrastre
operator
 The arrastre operator should observe the same degree of diligence as that required
of a common carrier and a warehouseman. Being the custodian of goods, it is its
duty to take good care of the goods and turn them over to the party entitled to
their possession
 Therefore, PR is liable for the loss
 An arrastre operator is bound by the management contract which is a sort of a
stipulation pour autrui
o Therefore, it is also binding on a consignee because it is incorporated in
the gate pass and delivery receipt which must be presented by
consignee before delivery can be effected to it
 The insurer is also bound by the management contract as a successor in interest
 Upon taking a delivery, the consignee tacitly accepts the provisions of the
management contract including those which are intended to limit the liability of
one of the contracting parties, the arrastre operator
 BUT a consignee who does not avail the services of an arrastre operator is not
bound by the management contract. This is however not applicable here since the
consignee in fact accepted the delivery of the cargo from the arrastre operator
Baluyot vs. CA
 While prescription does not run against registered lands, nonetheless a registered
owner’s action to recover possession of his land may be barred by laches.
 But UP is not suing in this case. It is petitioners who are, and their suit is mainly
to seek enforcement of the deed of donation made by UP in favor of the Quezon
City government. If at all, they are claiming ownership by prescription which, as
already stated, is untenable considering that the land in question is a registered
land. Nor can petitioners question the validity of UP’s title to the land this
constitutes a collateral attack on registered title which is not permitted.
 A cause of action exists if the following elements are present, namely: (1) a right
in favor of the plaintiff by whatever means and under whatever law it arises or is
created;(2) an obligation on the part of the defendant to respect or not to violate
such right; and(3) an act or omission on the part of such defendant in violation of
the right of the plaintiff or constituting a breach of the obligations of the
defendant to the plaintiff for which the latter may maintain an action for recovery
of damages.

 Art. 1311, second paragraph, of the Civil Code provides:
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obliger before
its revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a third
person
WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS,
HON. ROBERT BALAO and NATIONAL HOUSING AUTHORITY,
 Petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
autrui under the contracts of sale, they do not, under substantive law, possess the
right they seek to enforce.
 Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted
and defended in the name of the real party-in-interest. An action shall be
prosecuted in the name of the party who, by the substantive law, has the right
sought to be enforced.
 According Article 1311 of the Civil Code Contracts take effect only between the
parties, their assigns, and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation,
or by provision of law. .
 If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient.
 Petitioners are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals.
 The rendering of such service did not make them parties to the contracts of sale
executed in behalf of the latter.
 An agent, in his own behalf, may bring as an assignee of such contract. Section
372 (1) of the Restatement of the Law on Agency. Petitioners, however, were not
able to show that they were assignees of their principal.
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 There was no “rescission” per se. What is involved is a cancellation based on the
negation of the cause of the contract.
 The right of rescission or, more accurately, resolution, is predicated on a breach
of faith by the other party.
 NHA did not have the right to rescind for the other parties to the contract, the
vendors, did not commit any breach of their obligation.
 The cancellation was based on the negation of the cause arising from the
realization that the lands, which were the object of the sale, were not suitable for
housing.
 Cause, which is the essential reason for the contract, should be distinguished
from motive, which is the particular reason of a party which does not affect the
other party.
 the quality of the land was an implied condition for the NHA to enter into the
contract. On NHA’s part, therefore, the motive was the cause for its being a party
to the sale. The findings of the Land Geosciences Bureau were sufficient for the
cancellation of the sale
MAMARIL V. THE BOY SCOUT OF THE PHILIPPINES
 vicarious liability of an employer cannot be applied in this case since BSP is not
the employer of the security guards
 It is a contract between respondent and AIB
 The said contract did not contain any stipulation pour autrui
 For a stipulation pour autrui to be valid, the following must concur:
o (1) There is a stipulation in favor of a third person;
o (2) The stipulation is a part, not the whole, of the contract;
o (3) The contracting parties clearly and deliberately conferred a favor to the third
person - the favor is not merely incidental;
o (4) The favor is unconditional and uncompensated;

o (5) The third person communicated his or her acceptance of the favor before its
revocation; and
o (6) The contracting parties do not represent, or are not authorized, by the third
party.22
 However, none of the foregoing elements obtains in this case.
 What the contract between Respondent and AIB is only limited to its premises
and employees and nothing reflecting a stipulation with regard to third persons
Bel Air Village Association, Inc. vs Virgilio Dionisio
 According to the Land Registration Act, purchasers of a registered land are bound
by the annotations found at the back of the certificate of title covering the subject
parcel of land.
 When the petitioner voluntarily bought the subject parcel of land it was
understood that he took the same free of all encumbrances except annotations at
the back of the certificate of title, among them, that he automatically becomes a
member of the respondent association. One of the obligations of a member is to
pay certain amounts for the operation and activities of the association.
 The limitations upon the ownership of the petitioner do not contravene provisions
of laws, morals, good customs, public order or public policy.
 Since these limitations have been imposed upon the contract of sale as admitted
in the stipulation of facts, it I obvious that the annotation of said lien and
encumbrance that the defendant automatically becomes a member of the
association is binding and enforceable.
DAYWALT VS CORPORACION DE PP. AGUSTINOS RECOLETOS
 defendant corporation, having notice of the sale of the land in question to
Daywalt, might have been enjoined by the latter from using the property for
grazing its cattle thereon. That the defendant corporation is also liable in this
action for the damage resulting to the plaintiff from the wrongful use and
occupation of the property has also been already determined.
 But it will be observed that in order to sustain this liability it is not necessary to
resort to any subtle exegesis relative to the liability of a stranger to a contract for
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unlawful interference in the performance thereof. It is enough that defendant use
the property with notice that the plaintiff had a prior and better right.
 Article 1902 of the Civil Code declares that any person who by an act or
omission, characterized by fault or negligence, causes damage to another shall be
liable for the damage so done. Ignoring so much of this article as relates to
liability for negligence, we take the rule to be that a person is liable for damage
done to another by any culpable act; and by "culpable act" we mean any act
which is blameworthy when judged by accepted legal standards.
 Article 1257 of the Civil Code declares that contracts are binding only between
the parties and their privies. In conformity with this it has been held that a
stranger to a contract has no right of action for the non fulfillment of the contract
except in the case especially contemplated in the second paragraph of the same
article.
 Whatever may be the character of the liability which a stranger to a contract may
incur by advising or assisting one of the parties to evade performance, there is
one proposition upon which all must agree.
 This is, that the stranger cannot become more extensively liable in damages for
the nonperformance of the contract than the party in whose behalf he
intermeddles.
 To hold the stranger liable for damages in excess of those that could be recovered
against the immediate party to the contract would lead to results at once
grotesque and unjust. In the case at bar, as Teodorica Endencia was the party
directly bound by the contract, it is obvious that the liability of the defendant
corporation, even admitting that it has made itself coparticipant in the breach of
the contract, can in no even exceed hers.
INOCENCIO V. HOSPICIO DE SAN JOSE
 Since lease contracts are not personal, it survives the death of the parties and
continue to bind the heirs except when the contract provides otherwise
 Sec. 6 of the contract provided that it is non transferable unless prior consent of
the lessor is obtained in writing

 In this case, HDSJ acknowledged that Ramon is its month-to month lessee and
thus, the death of German did not terminate the lease contract. Since the month
has already expired, Ramon must now leave the premises
 Inocencios, tortious interference has the following elements:
o (1) existence of a valid contract;
o (2) knowledge on the part of the third person of the existence of the
contract; and
o (3) interference of the third person without legal justification or excuse
Ouano v CA
 In the first place, Rafols did not violate the terms of the contract by entering into
a contract of transportation of cement cargo with MADE since it did not sublet
nor sub-charter the same to the latter. The possession, operation and
management of the vessel remained with Rafols as the charterer.
 Further, it is a basic principle in civil law that with certain exceptions, a contract
can only bind the parties who had entered into it or by their successors who had
assumed their personalities or juridical position and as a consequence, such a
contract can neither favor nor prejudice a third person.
 It is undisputed that the charter contract was entered into only by Ouano and
Rafols and MADE and SMCSI were not parties thereto nor were they aware of
the provisions thereof.
 Even if the petitioner’s allegation that Rafols subleased the vessel to MADE, it
does not give Ouano any cause of action against the supposed sublessee as his
right of recourse is against the original charterer.
 The obligation to obtain the written consent of petitioner before subleasing or
sub-chartering the vessel was on Rafols and not on MADE, hence the latter
cannot be held liable for the supposed non-compliance therewith.
 Also, herein petitioner is deemed to have ratified the supposed sub-charter
contract entered into by MADE and Rafols when he demanded the payment of
the second freight installment as provided in the agreement and, later, received
the same by virtue of the CFI decision.
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BA VS IAC 145 SCRA 419 (1986)
 It is highly unlikely that the intended recipient of the amount should be ACTC
given that the account number and the name clearly indicate Minami as the
beneficiary.
 “the opening of a letter in favor of the exporter becomes ultimately but the result
of a stipulation pour atrui.”
 If Tokyo Tourist had actually intended to credit the amount to ACTC, it should
have, upon finding out that it was deposited to Minami’s account, filed a
complaint against Kyowa Bank. Since that was not done, it can be sufficiently
concluded that Tokyo Tourist really intended the remittance to be credited to
Minami.
ROYAL LINES VS CA 143 SCRA 608 (1986)
 A contract is a meeting of minds between the parties and is perfected by mere
consent except in the case of certain agreements like deposit, pledge and
commodatum. It may be entered into whatever form save where the law requires
a document or other special form as in the contracts enumerated in Art. 1388
NCC.
 As a general rule, the contract may be oral or written.
 the original contract of services was in writing. However, it does not follow that
all supplements of the written contract should be written as well.
 Art. IV of the contract stipulates: “During the performance of the work required
on the vessel at the Bataan National Shipyard, the owner, at his option may send
an authorized representative o be present while the work is being performed. In
the event that the owner requests for any modification, change and/or extra work
to be performed on the vessel, which are not otherwise specified herein and
which have not been included in the Specifications submitted by the Builder to
the owner, the same shall be subject of another contract between the parties
thereto.”
 the contracting parties did not necessarily or explicitly agree that the second
contract should be in writing. The second contract could be verbal and will be

binding upon both parties as long as it represented a meeting minds between
them.
VILLANUEVA VS CA 244 SCRA 395 (1995)
 Under Art. 1323 NCC, an offer becomes ineffective upon the death, civil
interdiction, insanity or insolvency of either party before acceptance is conveyed.
The reason for this is that the contract is not perfected except by the concurrence
of two wills which exist and continue until the moment they occur.
 The contract is not yet perfected at any time before acceptance is conveyed;
hence, the disappearance of either party or his capacity before perfection prevents
the contractual tie from being formed.
 The insolvency of a bank and the consequent appointment of a receiver restrict
the banks capacity to act, especially in the case of property, which is the case
here. Applying Art. 1323 Ong’s offer to purchase the lots became ineffective
because the PVB became insolvent before the bank’s acceptance of the offer
came to his knowledge. Hence, the purported contract of sale between Ong and
PVB did to reach perfection.
OBANA VS CA 135 SCRA 557 (1985)
 It is clear that Chan had intentions of swindling both Sandoval and Obana by
purchasing from Sandoval the cavans of rice at P37.25 and offering the same to
Obana at a much lower price. His purpose in entering into said contract with
Sandoval was to gain physical possession of the goods and pass them to Obana
on the pretext that he is the owner thereof. Premises considered, Chan Lin cannot
be considered as the owner of the goods at the time the same was said to have
been sold to Obana. Considering that Obana acquired the 170 cavans from
someone who is not the owner, therefore he acquired no greater right than his
predecessor-in-interest. Based on the principle of equity, it is but proper that
Sandoval be allowed to recover 170 cavans of rice or its value
 Chan Lin had a rescissible title to the goods for the non-payment of the purchase
price but it was not rescinded at the time of sale to the petitioner.But the
petitioner’s testimony proves that there was voluntary rescission considering that
Chan Lin returned the money Obana paid.
 Obana cannot be allowed to unjustly enrich himself at the expense of another by
holding on to property no longer belonging to him. In law and in equity,
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Sandoval is entitled to recover the rice or its value since Obana has not paid the
price for it.
SERRA VS CA, 229 SCRA 60 (1994)
 The contract, when valid, is the law between the parties and if there is a need for
some changes, both parties could by themselves negotiate for the amendment of
the contract.
 Art. 1324 NCC provides that when a offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn anytime before acceptance by
communicating such withdrawal, except when the option is founded upon
consideration, as something paid or promised.
 Art. 1479 NCC provides that an accepted unilateral promise to buy and sell a
determinate thing for a specific price is binding upon the promisor if the promise
is supported by a consideration distinct from the price.
 In a unilateral promise to sell, where the debtor fails to withdraw the promise
before the acceptance of the creditor, the transaction becomes a bilateral contract
to sell and to buy because upon acceptance by the creditor of the offer to sell by
the debtor, there is already a meeting of minds of the parties as to the thing which
is determinate and the price which is certain. In such case, the parties may
demand reciprocal performance. Jurisprudence has taught us that an optional
contract is a privilege existing only in one party—the buyer.
 For a separate consideration paid, he is given the right to decide to purchase or
not, a certain merchandise or property, at any time within the agreed period, at a
fixed price. This being his prerogative, he may not be compelled to exercise the
option to buy before the time expires.
 In the present case, the consideration is even more onerous on the part of the
lessee since it entails a transfer of the building and/or improvements on the
property to the petitioner should the Bank fail to exercise its option within the
period stipulated.
CF SHARP & CO INC VS PIONEER INSURANCE AND SURETY
CORPORATION
 Contracts undergo 3 distinct stages:

1. Negotiation--begins from the time prospective contracting parties manifest their
interest i the contract and ends the moment of agreement of parties
2. Perfection or birth of the contract-- takes place when the parties agree upon the
essential elements of the contract
3. Consummation--occurs when the parties fulfill or perform the terms agreed
upon in the contract, culminating in the extinguishment thereof.
 Under Article 1315 of the Civil Code, a contract is perfected by mere consent and
from that moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law
 the perfection and effectivity of the Contract of Employment depend upon the
actual deployment of respondents. It based its conclusion that there was no
perfected contract based on the following rationale:
 The commencement of an employer-employee relationship must be treated
separately from the perfection of an employment contract.
 Despite the fact that the employer-employee relationship has not commenced due
to the failure to deploy respondents in this case, respondents are entitled to rights
arising from the perfected Contract of Employment, such as the right to demand
performance by C.F. Sharp of its obligation under the contract
STARBRIGHT SALES ENTERPRISES, INC. V. PHILIPPINE REALTY
CORPORATION (PRC)
 While Cirilos had a perfected contract with Licup, when the latter proposed the
transfer the same to SSE. a subjective novation took place
 Therefore, a new debtor was placed
 SE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos
dated April 17, 1988 since it was not privy to such contract.
 The parties to it were Licup and Msgr. Cirilos. Under the principle of relativity of
contracts, contracts can only bind the parties who entered into it. It cannot favor
or prejudice a third person.
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VICENTE MANZANO, JR., Petitioner, v. MARCELINO GARCIA,
 No rule requiring expert testimony to determine the genuineness of a signature
appearing on a document. Since it was plainly obvious from the evidence on
record that the signature appearing on the pacto de retro sale is far different from
the customary signature of Garcia that appeared in his passport and driver's
license, the testimony of Garcia that the signature was not his is sufficient
evidence of the forgery pursuant to Section 50, Rule 130[15] of the Rules of
Court. On the basis of Atty. Mediante's testimony, the presumption of regularity
in the execution of the public document has been sufficiently destroyed and
overcome.
 Pacto de retro sale is void ab initio pursuant to Article 1409 in
relation to Article 1505 of the Civil Code.
 Irregularities in the notarization of the document may be established by oral
evidence of persons present in said proceeding. Here, the presumption of
regularity of the notarized deed of pacto de retro sale was sufficiently
overcome by the testimony of Atty. Mediante.
 At this point, however, we should clarify that the proper basis for the nullity
of the forged pacto de retro sale is not Article 1409 (enumerates examples of
void contracts) in relation to Article 1505 (refers to an unenforceable
contract and is applicable only to goods) of the Civil Code as stated by the
Court of Appeals, but Article 1318 of the Civil Code, which enumerates the
essential requisites of a valid contract:
 There are two types of void contracts: (1) those where one of the essential
requisites of a valid contract as provided for by Article 1318 of the Civil
Code is totally wanting; and (2) those declared to be so under Article 1409
of the Civil Code"Conveyances by virtue of a forged signature x x x are void
ab initio. The absence of the essential requisites of consent and cause or
consideration in these cases rendered the contract inexistent. x x x.
ONG YIU VS CA
 PAL had not acted in bad faith. It exercised due diligence in looking for
petitioner’s luggage which had been miscarried. Had petitioner waited or caused
someone to wait at the airport for the arrival of the morning flight which carried
his luggage, he would have been able to retrieve his luggage sooner. In the

absence of a wrongful act or omission or fraud, the petitioner is not entitled to
moral damages. Neither is he entitled to exemplary damages absent any proof
that the defendant acted in a wanton, fraudulent, reckless manner.
 The limited liability applies in this case. On the presumed negligence of PAL, its
liability for the loss however, is limited on the stipulation written on the back of
the plane
 Ticket which is P100 per baggage. The petitioner not having declared a greater
value and not having called the attention of PAL on its true value and paid the
tariff therefore. The stipulation is printed in reasonably and fairly big letters and
is easily readable.
VELASCO V. CA AND MAGDALENA ESTATE
● Petitioners admit that they still had to meet and agree on how and when the
down-payment and the installment payments were to be paid.
● Such being the situation, it cannot be said that a definite and firm sales agreement
between the parties had been perfected over the lot in question.
● Indeed, this Court has already ruled before that a definite agreement on the
manner of payment of the purchase price is an essential element in the formation
of a binding and enforceable contract of sale.
Weldon v CA
The first proposal submitted by Weldon Construction for rendering service under a
contract of supervision (Exhibit "A") is simply that, a proposal. It never attained
perfection as the contract between the parties.
● Only an absolute or unqualified acceptance of a definite offer manifests the
consent necessary to perfect a contract (Article 1319, New Civil Code).
To determine the nature of a contract courts do not have or are not bound to rely upon
the name or title given it by the contracting parties, should there be a controversy as to
what they really had intended to enter into, but the way the contracting parties do or
perform their respective obligations, stipulated or agreed upon may be shown and
inquired into, and should such performance conflict with the name given the contract
by the parties, the former must prevail over the latter
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Thus, the manner in which the parties conducted their transactions relating to the
construction of the Gay Theater building indicates whether the parties had intended to
be bound by a construction contract for a stipulated price or by any other agreement.
The demandability of the amounts sought to be recovered by the petitioner will depend
on the nature of that agreement.
The inescapable conclusion is that Weldon Construction assumed the obligation to
construct the building at the price fixed by the parties and to furnish both the labor and
materials required for the project.
● Both parties having fully performed their reciprocal obligations in accordance
with said contract, petitioner is estopped from invoking an entirely different
agreement so as to demand additional consideration. Once a contract has been
consummated, there is nothing left to be done or to be demanded by the parties
thereto. All obligations arising from the contract are extinguished.
MARIA CRISTINA FERTILIZER CORPORATION v. CA,
● Whether deemed to be an offer or an acceptance, the letter obviously is far from
the requisite offer or acceptance contemplated under Article 1319 of the Civil
Code.
● An offer must be clear and definite, while an acceptance must be
unconditional and unbounded, in order that their concurrence can give rise
to a perfected contract
● "Art. 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 an
counter-offer.
Sanchez v Rigos
● ART. 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.

● However, it is not Article 1354 but the Article 1479 which is controlling because
the latter‘s 2nd paragraph refers to "sales" in particular, and, more specifically, to
"an accepted unilateral promise to buy or to sell."
○ ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable. An accepted unilateral promise to
buy or sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from
the price.
● Article 1479 must be read in relation to Article 1324
● there may be no valid contract without a cause or consideration, the promisor is
not bound by his promise and may, accordingly, withdraw it. Pending notice of
its withdrawal, his accepted promise partakes, however, of the nature of an offer
to sell which, if accepted, results in a perfected contract of sale.
● Since there may be no valid contract without a cause or consideration, the
promisor is not bound by his promise and may, accordingly, withdraw it.
● Pending notice of its withdrawal, his accepted promise partakes, however, of the
nature of an offer to sell which, if accepted, results in a perfected contract of sale.
● Even if the "offer of option" is not supported by any consideration, the option
became binding on the promisor when the promisee gave notice to it of its
acceptance, and that having accepted it within the period of option, the offer can
no longer be withdrawn and in any event such withdrawal is ineffective.
NATINO V. IAC AND RURAL BANK OF AGUILAR
● No. The right to redeem becomes functus officio on the date of its expiry, and its
exercise after the period is not really one of redemption but a repurchase.
● Distinction must be made because redemption is by force of law; the purchaser at
public auction is bound to accept redemption.
● Repurchase however of foreclosed property, after redemption period, imposes no
such obligation.
● After expiry, the purchaser may or may not re-sell the property but no law will
compel him to do so, And, he is not bound by the bid price; it is entirely within
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his discretion to set a higher price, for after all, the property already belongs to
him as owner.
● Appellants failed to accept the offer; they deposited only P4,000.00. There
was therefore no meeting of the minds, and accordingly, appellants may no
longer be heard.
Serra v CA
● Article 1324 of the Civil Code provides that when an offeror has allowed the
offeree a certain period to accept, the offer maybe withdrawn at anytime before
acceptance by communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
● On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price.
● In a unilateral promise to sell, where the debtor fails to withdraw the promise
before the acceptance by the creditor, the transaction becomes a bilateral contract
to sell and to buy, because upon acceptance by the creditor of the offer to sell by
the debtor, there is already a meeting of the minds of the parties as to the thing
which is determinate and the price which is certain. In which case, the parties
may then reciprocally demand performance.
● In the present case, the consideration is even more onerous on the part of the
lessee since it entails transferring of the building and/or improvements on the
property to petitioner, should respondent bank fail to exercise its option within
the period stipulated.
ANG YU ASUNCION v. CA,
● Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
● In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the grantor’s

eventual intention to enter into a binding juridical relation with another but also
on terms, including the price, that obviously are yet to be later firmed up.
● remedy is not a writ of execution on the judgment, since there is none to execute,
but an action for damages in a proper forum for the purpose.
● An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and
compliance therewith may accordingly be exacted.
● An accepted unilateral promise which specifies the thing to be sold and the price
to be paid, when coupled with a valuable consideration distinct and separate from
the price, is what may properly be termed a perfected contract of option. This
contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:
● Observe, however, that the option is not the contract of sale itself. The
optionee has the right, but not the obligation, to buy. Once the option is exercised
timely, i.e., the offer is accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then reciprocally bound to comply
with their respective undertakings.
Buen Realty cannot be ousted from the ownership and possession of the property
● Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be
held subject to the writ of execution issued by respondent Judge, let alone ousted
from the ownership and possession of the property, without first being duly
afforded its day in court.
Equatorial Realty v Mayfair Theater
● Article 1324 speaks of an "offer" made by an offeror which the offeree may or
may not accept within a certain period.
○ Under this article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted the offer.
○ However, the offer cannot be withdrawn by the offeror within the period if a
consideration has been promised or given by the offeree in exchange for the
privilege of being given that period within which to accept the offer.
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○ The consideration is distinct from the price which is part of the offer. The
contract that arises is known as option.
● Article 1479, second paragraph, on the other hand, contemplates of an "accepted
unilateral promise to buy or to sell a determinate thing for a price within (which)
is binding upon the promisee if the promise is supported by a consideration
distinct from the price."
○ That "unilateral promise to buy or to sell a determinate thing for a price certain"
is called an offer. An "offer", in laws, is a proposal to enter into a contract.
○ In other words, paragraph 8 of the two Contracts of lease, particularly the
stipulation giving Mayfair "30-days exclusive option to purchase the (leased
premises)," was meant to provide Mayfair the opportunity to purchase and
acquire the leased property in the event that Carmelo should decide to dispose of
the property.
○ In order to realize this intention, the implicit obligation of Carmelo once it had
decided to sell the leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make an offer to sell the
leased premises to Mayfair, giving the latter a fair and reasonable opportunity to
accept or reject the offer, before offering to sell or selling the leased property to
third parties.
● The right vested in Mayfair is analogous to the right of first refusal, which means
that Carmelo should have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should receive any offer from
third parties to purchase the leased premises, then Carmelo must first give
Mayfair the opportunity to match that offer.
BIBLE BAPTIST CHURCH V. CA and SPS. VILLANUEVA
● A valid option contract has a separate and distinct consideration that supports it
● Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.

● An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
● The second paragraph of Article 1479 provides for the definition and consequent
rights and obligations under an option contract. For an option contract to be valid
and enforceable against the promissor, there must be a separate and distinct
consideration that supports it.
● An option contract needs to be supported by a separate consideration
● The consideration need not be monetary but could consist of other things or
undertakings. However, if the consideration is not monetary, these must be things
or undertakings of value, in view of the onerous nature of the contract of option.
Furthermore, when a consideration for an option contract is not monetary, said
consideration must be clearly specified as such in the option contract or clause.
● In this case, the option was not founded upon a separate and distinct
consideration and that, hence, spouses Villanuevas cannot be compelled to sell
their property to petitioner Baptist Church.
● The option to buy the leased premises was not binding upon the Villanuevas for
non-compliance with Article 1479.
Villegas v CA
● A right of first refusal is a contractual grant, not of the sale of a property, but of
the first priority to buy the property in the event the owner sells the same. The
exercise of the right of first refusal is dependent not only on the owners eventual
intention to sell the property but also on the final decision of the owner as regards
the terms of the sale including the price.
● When a lease contains a right of first refusal, the lessor has the legal duty to the
lessee not to sell the leased property to anyone at any price until after the lessor
has made an offer to sell the property to the lessee and the lessee has failed to
accept it.
● Only after the lessee has failed to exercise his right of first priority could the
lessor sell the property to other buyers under the same terms and conditions
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offered to the lessee,[28] or under terms and conditions more favorable to the
lessor.
● When petitioner-lessees opted not to respond to this offer, respondent-heirs
had the right to sell the property to other buyers. Petitioner-lessees already
exercised their right of first refusal when they refused to respond to the latest
offer of respondent-heirs, which amounted to a rejection of the offer. Upon
petitioner-lessees failure to respond to this latest offer of respondent-heirs, the
latter could validly sell the property to other buyers under the same terms and
conditions offered to petitioner-lessees. Thus, when respondent-heirs sold the
property to Lita Sy, respondent-heirs did not violate the right of first refusal of
petitioner-lessees.
ENRICO S. EULOGIO v. SPS. CLEMENTE APELES AND LUZ APELES
● spouses Apeles were able to overcome the burden of proof and prove by
preponderant evidence in disputing the authenticity and due execution of the
Contract of Lease with Option to Purchase.
● Even assuming for the sake of argument that we agree with Enrico that Luz
voluntarily entered into the Contract of Lease with Option to Purchase and
personally affixed her signature to the said document, the provision on the
option to purchase the subject property incorporated... in said Contract still
remains unenforceable.
● An option is a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the former's property
at a fixed price within a certain time. It is a condition offered or contract by
which the owner stipulates with another that the latter shall have the right to
buy the property at a fixed price within a certain time, or under, or in
compliance with certain terms and conditions; or which gives to the owner
of the property the right to sell or demand a sale.
● An option is not of itself a purchase, but merely secures the privilege to buy.
It is not a sale of property but a sale of the right to purchase.
● It is simply a contract by which the owner of the property agrees with
another person that he shall have the right to buy his property at a fixed price
within a certain time.

● Its distinguishing characteristic is that it imposes no binding obligation on
the person holding the option, aside from the consideration for the offer
● It is also sometimes called an "unaccepted offer" and is sanctioned by
Article 1479 of the Civil Code:
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
● The second paragraph of Article 1479 provides for the definition and
consequent rights and obligations under an option contract. For an option
contract to be valid and enforceable against the promissor, there must be a
separate and distinct consideration that supports it.
● In the present case, it is indubitable that no consideration was given by Enrico to
the spouses Apeles for the option contract. The absence of monetary or any
material consideration keeps this Court from enforcing the rights of the parties
under said option contract.
Vasquez v Ayala Corp
● An option is a preparatory contract in which one party grants to another, for a
fixed period and at a determined price, the privilege to buy or sell, or to decided
WON to enter into a principal contract.It binds the party who has given the option
NOT to enter into the principal contract with any other person during the period.
● In a right of first refusal, while the object may be determinate, the exercise of the
right would be dependent not only on the grantor’s eventual intention to enter
into a binding juridical relation with another, but also on terms, including the
price, that are yet to be firmed up.
● Par. 5.15 was inserted into the MOA to give the Sps the first crack to buy the
subject lots at the price which Ayala would be willing to accept when it offers the
lots for sale.
a. It is not supported by an independent consideration.
b. Hence not governed by Arts. 1324 and 1749!
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C&C COMMERCIAL CORPORATION V. MENOR
● A bidder whose bid is rejected has no cause for complaint nor a right to
dispute the award to another bidder
● Advertisements for bidders are simply invitation to make proposals, and the
advertiser is not bound to accept the highest or lowest bidder unless the
contrary appears
○ No such contrary intention appears in this case
● Nawasa was justified in rejecting the bid of petitioner for non-compliance
with the requirements prescribed by law
TANG v CA AND PHILIPPINE AMERICAN LIFE INSURANCE COMPANY
● Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to the former.
● According to the Code Commission: "This rule is especially necessary in the
Philippines where unfortunately there is still a fairly large number of
illiterates, and where documents are usually drawn up in English or
Spanish."
● Art. 1332 supplements Art. 24 of the Civil Code which provides that " In all
contractual, property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the court must be vigilant
for his protection.
● It should be noted that under Art. 1332 above quoted, the obligation to show
that the terms of the contract had been fully explained to the party who is
unable to read or understand the language of the contract, when fraud or
mistake is alleged, devolves on the party seeking to enforce it.
Here the insurance company is not seeking to enforce the contracts; on the contrary, it
is seeking to avoid their performance.

● It is petitioner who is seeking to enforce them even as fraud or mistake is not
alleged.
● Accordingly, respondent company was under no obligation to prove that the
terms of the insurance contracts were fully explained to the other party.
● Even if we were to say that the insurer is the one seeking the performance of
the contracts by avoiding paying the claim, it has to be noted as above stated
that there has been no imputation of mistake or fraud by the illiterate insured
whose personality is represented by her beneficiary the petitioner herein. In
sum, Art. 1332 is inapplicable to the case at bar.
DE LEON VS CA
● 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.
If the stipulation is contrary to law, morals or public policy, the contract is void
and inexistent from the beginning.
● Art. 1409. The following contracts are inexistent and void from the beginning:
Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy
xxx xxx xxx
(7) Those expressly prohibited or declared void by law.
● These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived. But marriage is not a mere contract but a sacred social
institution. Intervenor’s undertaking under Exhibit 'E' premised on the
termination of marital relationship is not only contrary to law but contrary to
Filipino morals and public Policy. As such, any agreement or obligations based
on such unlawful consideration and which is contrary to public policy should be
deemed null and void.
● However, Macaria was able to prove that the questioned properties are owned by
her. Neither Sylvia nor Jose Vicente adduced any contrary evidence.
● Art. 221. The following shall be void and of no effect:
(1) Any contract for personal separation between husband and wife;
(2) Every extra-judicial agreement, during marriage, for the dissolution of the
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conjugal partnership of gains or of the absolute community of property between
husband and wife
● Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence or fraud is voidable.
● 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 a contract. ...
● To determine the degree of the 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.
● In order that intimidation may vitiate consent and render the contract invalid, the
following requisites must concur: (1) that the intimidation must be the
determining cause of the contract, or must have caused the consent to be given;
(2) that the threatened act be unjust or unlawful; (3) that the threat be real and
serious, there being an evident disproportion between the evil and the resistance
which all men can offer, leading to the choice of the contract as the lesser evil;
and (4) that it produces a reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or ability to inflict the
threatened injury.
● In the ultimate analysis, therefore, both parties acted in violation of the laws.
However, the pari delicto rule, which refuses remedy to either party to an illegal
agreement and leaves them where they are, does not apply in this case.
• Article 1414 of the Civil Code, which is an exception to the pari delicto rule,
is the proper law to be applied. It provides:
When money is paid or property delivered for an illegal purpose, the contract
may be repudiated by one of the parties before the purpose has been
accomplished, or before any damage has been caused to a third person. In such
case, the courts may, if the public interest wig thus be subserved, allow the party
repudiating the contract to recover the money or property.
• Since the Letter-Agreement was repudiated before the purpose has been
accomplished and to adhere to the pari delicto rule in this case is to put a
premium to the circumvention of the laws, positive relief should be granted to

Macaria. Justice would be served by allowing her to be placed in the position in
which she was before the transaction was entered into.
Abando v Lozada
● The misrepresentations by Pucan are facts constitutive of fraud defined in Art.
1338:
● As that insidious words or machinations of one of the contracting parties, by
which the other is induced to contract which, without them, he would not have
agreed to.
● When fraud is employed to vitiate consent, the resulting contract is merely
voidable.Hence, contrary to the assertion of the Sps. Abando, the JVA and the DA
are not void.
● In re: Sps. Lozano’s good faith:
 Good faith refers to a state of mind which is manifested by the acts of the
individual.
 It is the opposite of fraud, and its absence should be established by convincing
evidence.
 In this case, when the real estate mortgage was executed, the titles were not yet
registered in the name of Pucan
 However, no evidence was presented to say that the Sps. Lozano were aware of
the fraud and deceit employed by Pucan upon the Sps. Abando!
 Mr. Lozano even went out of his way to verify from the Register of Deeds if the
properties were indeed in the name of Pucan.
SAMSON V. CA & ANGEL SANTOS
● PR was never guilty of fraud nor bad faith in claiming that there was implied
renewal of his contract of lease with Susana Realty
● Bad faith is essentially a state of mind affirmatively operating with furtive design
or with some motive of ill-will
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○ Not merely bad judgement or negligence
● It imports a dishonest purpose or some moral obliquity and conscious wrong
doings
● The kind of fraud that will vitiate consent is one where 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
○ This is dolo causante or casual fraud
○ Or deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other
● The letter of Bartolome (increase in lease) led PR to believe and conclude that his
lease contract was impliedly renewed and that formal renewal thereof would be
made upon arrival of Madrigal
● From the start it was known to both parties that as to the agreement regarding the
transfer of PR’s leasehold right to petitioner was concerned, the object thereof
related to a future right
○ It is a conditional contract between PR and Susana Realty
Umali v CA
 There is absolute simulation, which renders the contract null and void, when the
parties do not intend to be bound at all by the same. The basic characteristic of
this type of simulation of contract is the fact that the apparent contract is not
really desired or intended to either produce legal effects or in any way alter the
juridical situation of the parties.
 The subsequent act of Rivera in receiving and making use of the tractor subject
matter of the Sales Agreement and Chattel Mortgage, and the simultaneous
issuance of a surety bond in favor of Bormaheco, concomitant with the execution
of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage,
conduce to the conclusion that petitioners had every intention to be bound by
these contracts. The occurrence of these series of transactions between petitioners
and private respondents is a strong indication that the parties actually intended, or

at least expected, to exact fulfillment of their respective obligations from one
another.
 proof of fraud must be clear and convincing. We are not persuaded that such
quantum of proof exists in the case at bar.
PAYONGAYONG VS CA
● .It is a well established principle that a person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the law
will in no way oblige him to go behind the certificate to determine the condition
of property.
● He is considered in law as an innocent purchaser of value or one who buys
property of another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same.
● When innocent 3rd persons rely on correctness of certificate of title and acquire
rights over the property, the court can not just disregard such rights. Otherwise,
public confidence in cert of title/Torrens system would be impaired
● Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
● There being double sale of an immovable property, as the above-quoted provision
instructs, ownership shall be transferred (1) to the person acquiring it who in
good faith first recorded it in the Registry of Property; (2) in default thereof, to
the person who in good faith was first in possession; and (3) in default thereof, to
the person who presents the oldest title, provided there is good faith.
● Simulation occurs when an apparent contract is a declaration of a fictitious will,
deliberately made by the agreement of the parties, in order to produce, for the
purpose of deception, the appearance of a juridical act which does not exist or is
different from that which is executed. Its requisites are: a) an outward declaration
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of will different from the will of the parties; b) the false appearance must have
been by mutual agreement; and c) the purpose is to deceive third persons.
● The claim of simulation does not lie.
Heirs of Policronio Ureta v Heirs of Liberato Ureta
 A simulated contract of sale is without any cause or consideration, and is,
therefore, null and void.
 In such case, no independent action to rescind or annul the contract is necessary,
and it may be treated as non-existent for all purposes.
 A void or inexistent contract is one which has no force and effect from the
beginning, as if it has never been entered into, and which cannot be validated
either by time or ratification.
 A void contract produces no effect whatsoever either against or in favor of
anyone; it does not create, modify or extinguish the juridical relation to which it
refers.
 Therefore, it was not necessary for the Heirs of Alfonso to first file an action to
declare the nullity of the Deed of Sale prior to executing the Deed of Extra-
Judicial Partition
 The Deed of Sale was void because it is simulated as the parties did not intend to
be legally bound by it. As such, it produced no legal effects and did not alter the
juridical situation of the parties. It is only made to avoid tax purposes.
 In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it.
 The main characteristic of an absolute simulation is that the apparent contract is
not really desired or intended to produce legal effect or in any way alter the
juridical situation of the parties.
 . As a result, an absolutely simulated or fictitious contract is void, and the
parties may recover from each other what they may have given under the
contract.

 However, if the parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties are still bound by
their real agreement.
CARINO V. CA
● Characteristic of simulation is the fact that the apparent contract is not really
desired or intended to produce legal effects nor in any way alter the judicial
situation of the parties
● In this case, the parties knew that the document Exhibit D-1 was at once
fictitious and simulated where none of the parties intended to be bound
thereby
● A sale of land without consideration, but intended merely to protect a party
to a joint venture for the cash advances he was to make for the realty
subdivision that the parties wanted to put up, is null and void
Javier v CA and Tiro
 the true cause or consideration of said deed was the transfer of the forest
concession of private respondent to petitioners for P120,000.00. This finding is
supported by the following considerations, viz:
 The aforesaid contemporaneous and subsequent acts of petitioners and private
respondent reveal that the cause stated in the questioned deed of assignment is
false. It is settled that the previous and simultaneous and subsequent acts of the
parties are properly cognizable indica of their true intention.
● Where the parties to a contract have given it a practical construction by their
conduct as by acts in partial performance, such construction may be considered
by the court in construing the contract, determining its meaning and ascertaining
the mutual intention of the parties at the time of contracting.
● The efficacy of said deed of assignment is subject to the condition that the
application of private respondent for an additional area for forest concession be
approved by the Bureau of Forestry.
● Since private respondent did not obtain that approval, said deed produces no
effect.
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● When a contract is subject to a suspensive condition, its birth or effectivity can
take place only if and when the event which constitutes the condition happens or
is fulfilled. If the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed.
● Moreover, under the second paragraph of Article 1461 of the Civil Code, the
efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence. In this case, since private
respondent never acquired any right over the additional area for failure to secure
the approval of the Bureau of Forestry, the agreement executed therefor, which
had for its object the transfer of said right to petitioners, never became effective
or enforceable.
FORMAN VS ONG
 subject Deed of Sale is indeed simulated, as it is:
(1) totally devoid of consideration;
(2) it was executed on August 12, 1967, less than two months from the time the
subject land was donated to petitioner on June 25, 1967 by no less than the parents of
respondent Glenda Ong;
(3) on May 18, 1978, petitioner mortgaged the land to the Aklan Development Bank
for a ₱23,000.00 loan;
(4) from the time of the alleged sale, petitioner has been in actual possession of the
subject land;
(5) the alleged sale was registered on May 25, 1991 or about twenty four (24) years
after execution;
(6) respondent Glenda Ong never introduced any improvement on the subject land;
and
(7) petitioner’s house stood on a part of the subject land.
 These are facts and circumstances which may be considered badges of bad faith
that tip the balance in favor of petitioner.

 If the sale was legitimate, defendant Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes, registered the
sale, paid realty taxes, introduced improvements therein and should not have
allowed plaintiff to mortgage the land. These omissions properly militated against
defendant Glenda’s submission that the sale was legitimate and the consideration
was paid.
Villanueva v CA
1) Ong did not receive any notice of approval of his offer.
2) Before Ong knew his offer was accepted, PVB was placed under
receivership.
a. Pursuant to an MB Resolution after a finding that PVB was insolvent.
b. The PVB was effectively prohibited from doing business.
c. The receiver appointed was directed to take charge of its assets and
liabilities, etc.
3) Under Article 1323, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed.
4) Where upon insolvency of a bank a receiver is appointed, the assets of the
bank pass beyond its control and into the control of the receiver.
a. Hence appointment of receiver = suspension of authority of bank over its
properties and effects.
b. Under the Central Bank Act, the assets of a bank under receivership shall be
deemed in custodia legis in the hands of the receiver.
5) Applying Article 1323, Ong’s offer to purchase became INEFFECTIVE
because the PVB became insolvent before the Bank’s acceptance of the offer came to
his knowledge.
a. Hence, the contract never reached perfection.
BOSTON BANK OF THE PHILIPPINES V. MANALO
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● NO. Contract is unenforceable because manner of payment of 80% balance has
yet to be agreed upon.
● For a perfected contract of sale or contract to sell to exist in law, there must be an
agreement of the parties, not only on the price of the property sold, but also on
the manner the price is to be paid by the vendee.
● Price is an essential element in the formation of a binding and enforceable
contract of sale. In a contract to sell property by installments, it is not enough that
the parties agree on the price as well as the amount of downpayment. The parties
must, likewise, agree on the manner of payment of the balance of the purchase
price and on the other terms and conditions relative to the sale. Even if the buyer
makes a downpayment or portion thereof, such payment cannot be considered as
sufficient proof of the perfection of any purchase and sale between the parties.
● Jurisprudence has ruled that if a material element of a contemplated contract is
left for future negotiations, the same is too indefinite to be enforceable. And when
an essential element of a contract is reserved for future agreement of the parties,
no legal obligation arises until such future agreement is concluded.
PLATINUM PLANS PHIL. INC. v. ROMEO R. CUCUECO
To begin with, a contract of sale is defined under Article 1458 of the Civil Code as
follows:
By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.
● In a contract of sale, the vendor cannot recover ownership of the thing sold until
and unless the contract itself is resolved and set aside.
● On this score, it is significant to note that the resolution or rescission of a contract
of sale is further circumscribed by Article 1592 of the Civil Code which provides:
“In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon, the rescission of the
contract shall of right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the demand, the court may
not grant him a new term.”
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● On the other hand, a contract to sell is defined as a bilateral contract whereby the Court is precluded from finding any cause of action that would warrant the
prospective seller, while expressly reserving the ownership of the subject granting of the reliefs prayed for in respondent's complaint.
property despite its delivery to the prospective buyer, commits to sell the property
exclusively to the prospective buyer upon fulfillment of the condition agreed ADELFA PROPERTIES INC., VS CA
upon, that is, full payment of the purchase price.
Contract to sell Contract of sale
● Full payment in this context is deemed a positive suspensive condition.

● It bears stressing that ownership of the property offered for sale is reserved in the by agreement the ownership is the title passes to the vendee upon the
seller and is not to pass to the buyer until such condition has been fulfilled. reserved in the vendor and is not to delivery of the thing sold
pass until the full payment of the
● As a result, if the party contracting to sell, because of non-compliance with the price
suspensive condition stipulated, seeks to eject the would-be buyer from the land
object of the agreement, the former is enforcing the contract and not resolving it.
The failure to make payment is not a breach of the contract but an event that , title is retained by the vendor until the vendor has lost and cannot recover
prevented the obligation to convey the title from materializing. the full payment of the price, such ownership until and unless the contract is
payment being a positive resolved or rescinded;
● Based on the foregoing distinctions, a contract to sell may not be considered as a suspensive condition and failure of
contract of sale because the first essential element of consent to a transfer of which is not a breach but an event
ownership is lacking in the former. Since the prospective seller in a contract to that prevents the obligation of the
sell explicitly reserves the transfer of title to the prospective buyer, the vendor to convey title from a deed of sale is considered absolute in
prospective seller does not as yet unequivocally agree or consent to a transfer becoming effective nature where there is neither a stipulation
ownership of the property subject of the contract to sell. On the happening of an in the deed that title to the property sold
event, that is, the full payment of the purchase price, the obligation then arises to is reserved in the seller until the full
execute a contract of sale that alone will transfer such ownership. payment of the price, nor one giving the
vendor the right to unilaterally resolve the
● Secondly, the reservation of the title in the name of petitioners indicates the
contract the moment the buyer fails to
intention of the parties to enter, at most, into a contract to sell. Be that as it may,
pay within a fixed period.
the intention of the parties to enter into a contract to sell did not effectively
translate into an enforceable obligation in view of their failure to agree on the
contract's actual terms. As in a contract of sale, it is important that there be a
stipulation on the period within which the payment would become due and
demandable, the absence of which would justify the conclusion that there was no
consent to the contract proposed.
OPTION Contract of Sale
● Considering that the agreement of the parties did not ripen into a binding and
enforceable contract meaning it did not acquire any obligatory force either for the
transfer of the ownership of the property or the rendition of payments as part of
the purchase price due to the absence of the essential element of consent, the

Unaccepted offer
No obligation rests on the party to
make any payment except such as
may be agreed on between parties as
consideration to support the option
until he has made up his mind within
the time specified
EARNEST MONEY
Part of the purchase price
Given only when there is already a sale
Given by the buyer in bound to pay the
balance
JG SUMMIT HOLDINGS, INC. V. CA
 The SC clearly and definitively ruled on the propriety of the bidding process
by exhaustively discussing the rules and principles of public bidding and
determining whether Kawasaki’s right to top granted to it in exchange for its
right of first refusal violates these principles. The shipbuilding industry was
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
merely mentioned in relation to the impact that it may receive as a result of
Fixes definitely the relative rights and
the Court’s ruling that a shipyard is not a public utility which should
obligations of both parties at the time of
maintain a 60%-40% Filipino-foreign equity ratio.
execution. Offer and acceptance are
concurrent, since minds of contracting
 In fact, the case was resolved based on basic principles of the right of first
parties meet in the terms of the agreement
refusal in commercial law and estoppel in civil law. Contractual obligations
arising from rights of first refusal are not new in this jurisdiction and have
been recognized in numerous cases. Estoppel is too known a civil law
concept to require an elongated discussion. Fundamental principles on
public bidding were likewise used to resolve the issues. There is also
nothing new about the right to top, which was merely a condition or a
reservation made in the bidding rules fully disclosed to all bidding parties.
 SC: Nothing in the JVA or in the bidding rules bars the conversion of the
right of first refusal to the right to top.
 There is nothing in the bidding rules that bars the losing bidders from
OPTION MONEY joining either the winning bidder or Kawasaki/PHI to raise the
purchase price. There was also no allegation or proof that the
participation of the losing bidders in the public bidding was done with
Money given as a distinct consideration for an fraudulent intent. Absent any proof of fraud, the formation by PHI of a
option contract consortium is legitimate in a free enterprise system, unlike in a contract for
the operation of or construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an important
Applies to a sale not yet perfected
consideration. In the latter case, the government would have to take utmost
precaution to protect public interest by ensuring that the parties with which
Not required to buy it is contracting have the ability to satisfactorily construct or operate the
infrastructure.
 SC: PHI admitted that PHILSECO owned land until the time of the
bidding. However, PHI asserts that this would not affect the right of first
refusal but only the exercise thereof, meaning: (1) if the land is retained,
the right of first refusal, being a property right, could be assigned to a
qualified party; or (2) the land could be divested before the exercise of the
right of first refusal. However here, the right of first refusal was validly
converted into a right to top, which was exercised not by Kawasaki but
by PHI, a Filipino corporation. As such, there is no violation of the
Constitution.
 OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 The SC upheld PHI’s argument and declared that the mutual right of first a. A lease with a proviso granting the lessee a right of first refusal ”all things and
refusal of NIDC and Kawasaki in the JVA was valid. First, it held that conditions being equal” meant that there should be identity of the terms and
said right consisted of NIDC and Kawasaki’s property right given to them conditions to be offered to the lessee and all other prospective buyers.
by their contract. This agreement, by itself, does not constitute a violation of
the provisions of the Constitution limiting land ownership to Filipinos and b. A deed of sale executed in favor of a 3rd party who is not a purchaser in good faith
Filipino corporations. The SC sustained the abovementioned alternative is rescissible (not voidable, under the Statute of Frauds).
options given by PHI to avoid a violation of the constitution. It further held
that if Kawasaki, while PHILSECO still owns land, assigns its right to a ii. Ang Yu v Asuncion case!
qualified Filipino entity in order to maintain the 60%-40% ratio, this transfer
a. Court departed from the Guzman v Bonnevie doctrine and refused to rescind a
would not necessarily amount to a violation of the Anti-Dummy Laws,
contract of sale which violated the right of first refusal.
absent proof of any fraudulent intent.
b. Court held that a right of first refusal cannot be deemed a perfected contract of sale.
 Further, the SC said that even if Kawasaki’s shareholdings in PHILSECO
exceed 40%, it would not necessarily affect its standing as a c. Hence, a breach of such would only entitle the aggrieved party to an action for
shareholder; it would most likely affect PHILSECO itself and disqualify damages.
it from owning land. This finds support under the basic corporate law
principle that the corporation and its stockholders are separate juridical iii. Equatorial Realty v Mayfair case!
entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the a. Court reverted back to the Guzman v Bonnevie doctrine!
corporation. Hence, the fact that PHILSECO owns land cannot deprive
stockholders of their right of first refusal. No law disqualifies a person b. Rescission is a relief allowed for the protection of one of the contracting parties and
from purchasing shares in a landholding corporation even if the latter even 3rd persons, from injury and damage the contract (right of first refusal) may
will exceed the allowed foreign equity, what the law disqualifies is the cause.
corporation from owning land. This is the clear import of the relevant
iv. Paranaque Kings v CA case!
provisions under the constitution.[1]
a. In order to have full compliance with the contractual right granting petitioner the
 SC: The discretion to accept or reject a bid and award contracts is vested in
first option to purchase (right of first refusal), the sale of the properties for the price
the government agencies entrusted with that function. The discretion given
which they were finally sold to third persons should have been likewise been offered
to the authorities on this matter is of such wide latitude that the courts will
to the party with the right of first refusal.
not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent award. It is only upon a clear showing of grave abuse of
b. Further, there should be identity of terms and conditions to be offered to the buyer
discretion that the courts will set aside the award of a contract made by a
with a right of first refusal.
government entity.
c. Lastly, the basis of the right of first refusal must be the current offer to sell or the
offer to purchase.
Riviera Filipina, Inc. v CA
2) Hence, the prevailing doctrine is that a right of first refusal means
i. Guzman v Bonnevie case!

i. Identity of terms and conditions to be offered to the lessee and all
other prospective buyers; and
ii. A contract of sale entered into in violation of a right of first
refusal is, while valid, is rescissible.
3) In this case, due to the actions of Reyes and Riviera, Inc to the Contract of
Lease, they have shaped their interpretation of right of first refusal provided for in the
Contract to mean simply:
i. That should Reyes decide to sell the lot during the term of the lease, such sale
should first be offered to Riviera.
4) It is clear that Riviera, Inc. was insistent in its 5k offer and was not willing
to budge.
5) So it’s hard to conclude that after Reyes informed Riviera, Inc. that it had
lost its right of first refusal due to its insistence on purchasing it at a mere 5k, Riviera,
Inc. would’ve matched the higher 5.3k price offered to Traballo.
6) Pursuant to Article 1339, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce communication should be made.
In light of the parties’ interpretation of the right of first refusal in their lease contract,
the Court would be rewriting the Contract of Lease if the Court would interpret the
right of first refusal as Riviera, Inc. propounds it, despite contrary construction as
exhibited by its actions.
Tanay Recreation v Faustino
 When a lease contract contains a right of first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee has failed to accept it.
● The lessee has a right that the lessor's first offer shall be in his favor.
● Petitioners right of first refusal is an integral and indivisible part of the contract
of lease and is inseparable from the whole contract. The consideration for the
lease includes the consideration for the right of first refusal and is built into the
reciprocal obligations of the parties
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
● With the death of Fausto, whatever rights and obligations she had over the
property, including her obligation under the lease contract, were transmitted to
her heirs by way of succession.
● A lease contract is not essentially personal in character.
● Thus, the rights and obligations therein are transmissible to the heirs. The
general rule is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising
therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law
● In this case, the nature of the rights and obligations are, by their nature,
transmissible. There is also neither contractual stipulation nor provision of
law that makes the rights and obligations under the lease contract
intransmissible. Thus, the contract of lease, with all its concomitant
provisions, continues even after Faustos death and her heirs merely stepped
into her shoes. Respondent, as an heir of Fausto, is therefore bound to fulfill
all its terms and conditions.
***JURISPRUDENCE ON EFFECT OF SALE IN VIOLATION OF RIGHT OF
FIRST REFUSAL:
1.1992: Guzman, Bocaling & Co. v. Bonnevie: where the Court held that a lease with
a proviso granting the lessee the right of first priority all things and conditions being
equal meant that there should be identity of the terms and conditions to be offered to
the lessee and all other prospective buyers, with the lessee to enjoy the right of first
priority.
● A deed of sale executed in favor of a third party who cannot be deemed a
purchaser in good faith, and which is in violation of a right of first refusal granted
to the lessee is not voidable under the Statute of Frauds but rescissible under
Articles 1380 to 1381 (3) of the New Civil Code.
2. 1994: Ang Yu Asuncion v. Court of Appeals, the Court en banc departed from the
doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie.. The Court held that the
so-called right of first refusal cannot be deemed a perfected contract of sale under
Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a
final judgment does not entitle the aggrieved party to a writ of execution of the
judgment but to an action for damages in a proper forum for the purpose.

3. 1996: Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the Court en
banc reverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating
that rescission is a relief allowed for the protection of one of the contracting parties
and even third persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract.
4. 1997, in Paranaque Kings Enterprises, Inc. v. Court of Appeals, the Court
affirmed the nature of and the concomitant rights and obligations of parties under a
right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co.
v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held
that in order to have full compliance with the contractual right granting petitioner the
first option to purchase, the sale of the properties for the price for which they were
finally sold to a third person should have likewise been first offered to the former.
Further, there should be identity of terms and conditions to be offered to the buyer
holding a right of first refusal if such right is not to be rendered illusory. Lastly, the
basis of the right of first refusal must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. (Prevailing doctrine above)
BENITO DILAG v. IAC, GR No. 72727, 1987-07-30
● The Deed of Absolute Sale in favor of petitioners executed in 1974 after filing of
case was a simulated and fictitious transaction to defraud Arellano who obtained
a money judgment against the parents of petitioners.
● Supposed sellers, spouses Pablo and Socorro Dilag who sold the lot in
question to their chldren for an insufficient consideration continued
exercising acts of ownership by leasing to David Diancin and turning over
material possession thereof to the latter as lessee.
● In fact, when the deed of sale in favor of Arellano was executed on August
30, 1982, by virtue of the failure of the former owners to redeem the
property within the period prescribed by law, the actual possessor was David
Diancin.
● He however recognized Arellano's right of ownership when he was notified
of the delivery of possession to Arellano .
● Furthermore, even assuming that petitioners became the valid and legal
owners of the lot in question by virtue of the deed of sale executed in their
favor in 1981, they nonetheless failed to avail themselves of their right as
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
registered owners to redeem the property from the private respondent herein
(buyer in the sale by public auction) within the period provided for by law.
Robleza v CA
1) Non-payment does not make a contract void; it results in a breach of contract for
non-performance and warrants an action for rescission or specific performance under
Article 1191.
2) Where the parties intended to be bound by the contract except that it did not
reflect the actual purchase price, there is only a relative simulation of contract which
remains valid and enforceable, but the parties shall be bound by their real
agreement.
3) Spouses Robleza admitted that the actual consideration was 50k for both lots,
but since the Spouses Robleza owed Mr. Tan’s mom 6k, they agreed to subtract it
from the purchase price (kaya 44k lang yung isang check).
a. Since there was partial payment, an action for declaration of nullity will not
prosper.
4) However, the power to rescind obligations is implied in reciprocal ones.
a. Hence, the remedy of resolution is available to the Spouses Robleza.
a. The pari delicto rule would not apply as both the object and cause are licit.
b. If the concealed contract is lawful, it is absolutely enforceable where the
essential requisites are present and the simulation was only on the content or term
VILLAMOR V. CA and SPS. REYES
 No. As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why
of the contracts, the essential reason which moves the contracting parties to enter
into the contract."
 The cause or the impelling reason on the part of private respondent executing the
deed of option as appearing in the deed itself is the petitioner's having agreed to
buy the 300 square meter portion of private respondents' land at P70.00 per

square meter "which was greatly higher than the actual reasonable prevailing
price."
 The option offered by private respondents had been accepted by the petitioner,
the promise, in the same document.
 The acceptance of an offer to sell for a price certain created a bilateral contract to
sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a
vendee
 Demandabilitiy may be exercised at any time after the execution of the deed.
 However, the Deed of Option did not provide for the period within which the
parties may demand the performance of their respective undertakings in the
instrument.
 The parties could not have contemplated that the delivery of the property and the
payment thereof could be made indefinitely and render uncertain the status of the
land.
 The failure of either parties to demand performance of the obligation of the other
for an unreasonable length of time renders the contract ineffective.
Olegario v CA
 In a contract of sale, consideration is, as a rule, different from the motive of the
parties.
 Consideration is defined as some right, interest, benefit, or advantage conferred
upon the promissor, to which he is otherwise not lawfully entitled, or any
detriment, prejudice, loss, or disadvantage suffered or undertaken by the
promisee other than to such as he is at the time of consent bound to suffer.
 As contradistinguished, motive is the condition of mind which incites to action,
but includes also the inference as to the existence of such condition, from an
external fact of a nature to produce such a condition.
 Under certain circumstances, however, the motive of the parties may be regarded
as the consideration when it predetermines the purpose of the contract. When
they blend to that degree, and the motive is unlawful, then the contract entered
into is null and void.
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 In the case at bench, the primary motive of Marciliano is selling the lot to private
respondents was to illegally frustrate petitioners' right of inheritance and to avoid
payment of estate tax.
 Applying Articles 1352 and 1409 of the Civil Code in relation to the
indispensable requisite of a valid cause, we hold that the alleged deed of sale is
void. It is also obvious to the eye that the contract of sale in 1986 is unregistered.
Thus, even if the contract of sale is valid, it cannot adversely affect third persons
because of its non-registration.
Lagunzad vs. Soto Vda. De Gonzalez
 Licensing agreement is not null and void for lack of or for having an illegal cause
or consideration
 While it is true that petitioner had purchased the rights to the book entitled "The
Moises Padilla Story," that did not dispense with the need for prior consent and
authority from the deceased heirs to portray publicly episodes in said deceased's
life and in that of his mother and the members of his family.
 A contract is valid even though one of the parties entered into it against his
own wish and desires, or even against his better judgment.
 In legal effect, there is no difference between a contract wherein one of the
contracting parties exchanges one condition for another because he looks for
greater profit or gain by reason of such change, and an agreement wherein one of
the contracting parties agrees to accept the lesser of two disadvantages
LIAM LAW v OLYMPIC SAWMILL
 Under Article 1354 of the Civil Code, with regard to the agreement of the parties
relative to the P6,000.00 obligation, "it is presumed that it exists and is lawful,
unless the debtor proves the contrary".
 Moreover, for sometime now, usury has been legally non-existent. Interest can
now be charged as lender and borrower may agree upon.
E. RAZON V. PHIL. PORTS AUTHORITY
 No. the transfer of the shares of stock of petitioner ERI to Bejo Romualdez was
null and void

 Not due to vitiated consent but because of want of monetary consideration
 General rule is that the causa of the contract must not be confused with the
motives of the parties, this case squarely fits into the exception that the motive
maz be regarded as causa when it predetermines the purpose of the contract
 On the part of Romualdez, the motive was to be able to contract with the
government which he was then prohibited by law from doing, and on petitioner
Razon's part, to be able to renew his management contract.
 For it is scarcely disputable that Enrique Razon would not have transferred said
shares of stock to Romualdez without an assurance from the latter that he would
be unduly favored with a renewal of the Management Contract.
 We have resolved to be null and void, served as the direct link to petitioner
company's obtaining the Management Contract. Being the direct consequence
and result of a previous illegal contract, the Management Contract itself is null
and void as provided in Article 1422 of the Civil Code.
Pangadil v CFI of Cotabato
 The imprescriptibility of an action to declare the inexistence of a contract refers
only to the contracts expressly enumerated in Article 1409 of the Civil Code.
 Admitted facts show that the conveyance of the land in question in favor of the
private respondents had been effected by the father of the petitioners during his
lifetime. It may not be said, therefore, that in executing a deed to ratify said
transaction executed by her father, petitioners Salandang Pangadil and Tinting
Pangadil deprived their minor brothers and sisters of their supposed shares in the
inheritance from their deceased father.
 Assuming, once again, that the execution of the deed of ratification was attended
by fraud, such circumstance would only make the contract voidable or annulable
(Art. 1309, Civil Code), and not an inexistent and void contract in accordance
with Article 1409 of the same Code. The action to annul a voidable contract is
not imprescriptible, unlike in the case of an inexistent contract. If the action to
annul a voidable contract is based on fraud, as in the case herein, it prescribes in
four years from the time of the discovery of the fraud. (Art. 1391, Civil Code.)
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 The simulation of a contract may either be absolute or relative. It is only when
the contract is absolutely simulated or fictitious that it is deemed void.There is
absolute simulation "when the parties do not intend to be bound at all."
 In case the parties merely conceal their true agreement, the simulation is relative,
and the contract with that defect is binding upon the parties unless it prejudices a
third person and is intended for a purpose contrary to law, morals, good customs,
public order or public policy. (Arts. 1345 and 1346, Civil Code.)
 The document in question may not be deemed absolutely simulated or fictitious.
By petitioners' own admission, they intended to be bound thereby; they merely
contend that they thought it was to ratify a contract of oral mortgage, instead of
an oral sale of land
TORRES VS CA
 ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
 It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and insisted
on the provisions they wanted.
 Courts are not authorized to extricate parties from the necessary consequences of
their acts, and the fact that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties thereto of their obligations.
They cannot now disavow the relationship formed from such agreement due to
their supposed misunderstanding of its terms.
 Clearly, the contract manifested the intention of the parties to form a partnership.
● Petitioners were wrong in contending that the JVA is void under Article 1422 of
the Civil Code, because it is the direct result of an earlier illegal contract, which
was for the sale of the land without valid consideration.

● The Joint Venture Agreement clearly states that the consideration for the sale was
the expectation of profits from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the parcel of land sold to
respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another.
OBLIGATIONS AND CONTRACTS: FINALS CASE DOCTRINES
ALEEZAH GERTRUDE
 However, since several service providers in NAIA T1 and T2 extends beyond
when PIATCO starts its exclusive right to operate, PIATCO cannot by law and
certainly not by contract, render a valid and binding contract nugatory

● In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the trial
court, the land was in effect given to the partnership as petitioners participation
therein.

Agan, Jr. v. Philippine International Air Terminals Co., Inc

● Public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition.

 An essential element of a publicly bidded contract is that all bidders must be on

equal footing. Each bidder must be able to bid on the same thing!

 A winning bidder may amend certain provisions, but it must not constitute
material or substantial changes which would alter the contract itself. This would
constitute a denial to the other bidders the opportunity to bid on the same terms!

● In this case, clearly the ARCA substantially amended the 1997 Concession
Agreement which gave PIATCO added financial benefits which were not
available to it in the 1997 Concession Agreement.

 The PIATCO cannot, by mere contractual stipulation, contravene the

Constitution!

● Lastly, the Agreements grant PIATCO the EXCLUSIVE RIGHT to operate

a commercial international terminal within the Island of Luzon at the NAIA
T3 (with several exceptions i.e. Clark, Subic, and Laoag).

 Under the Constitution, monopolies are not prohibited, but it must be regulated.

 So MIAA has the right and duty to ensure that PIATCO’s exclusivity must be
done in accord with public interest. (Sinabi lang ata to cuz it doesn’t necessarily
violate anything)