GOLANGCO V. PCIBFacts: In 1989, William Golangco Construction Corporation (WGCC) and the Philippine Commercial International Bank (PCIB) entered into a contract for the construction of the extension of PCIB Tower II. The project included, among others, the application of a granitite wash-out finish on the exterior walls of the building.

In a letter, PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of the completed work by WGCC. To answer for any defect arising within a period of one year, WGCC submitted a guarantee bond dated July 1, 1992 in compliance with the construction contract (Defects liability period).

The controversy between the parties arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from the walls in 1993.WGCC made minor repairs after PCIB requested it to rectify the construction defects.

In 1994, PCIB entered into another contract with Brains and Brawn Construction and Development Corporation to re-do the entire granitite wash-out finish after WGCC manifested that it was "not in a position to do the new finishing work," though it was willing to share part of the cost. PCIB incurred expenses amounting to P11, 665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) for the reimbursement of its expenses for the repairs made by another contractor. It complained of WGCCs alleged non-compliance with their contractual terms on materials and workmanship.

The CIAC declared WGCC liable for the construction defects in the project.

On appeal, the CA affirmed the CIAC decision.

Hence, this present petition.

Issue: Whether or not petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after the lapse of the one-year defects liability period provided in Art. XI of the construction contract.

Held: No.

The controversy pivots on a provision in the construction contract referred to as the defects liability period. Article XI of the construction contract provides:

xxx

the CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any defect in materials and workmanship which becomes evident within one (1) year after the final acceptance of the work.

Article 1306 of the Civil Code enunciates the autonomous nature of contracts.

Article 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.

Obligations arising from contracts have the force of law between the parties and should be complied with in good faith. In characterizing the contract as having the force of law between the parties, the law stresses the obligatory nature of a binding and valid agreement.

In the present case, the provision in the construction contract providing for a defects liability period was not shown as contrary to law, morals, good customs, pubic order or public policy. By the nature of the obligation in such contract, the provision limiting liability for defects and fixing specific guaranty periods was not only fair and equitable; it was also necessary. Without such limitation, the contractor would be expected to make a perpetual guarantee on all materials and workmanship.

The contract further did not specify a different period for defects in the granitite wash-out finish; hence, any defect therein should have been brought to WGCCs attention within the one-year defects liability period in the contract.

We cannot countenance an interpretation that undermines a contractual stipulation freely and validly agreed upon. The courts will not relieve a party from the effects of an unwise or unfavorable contract freely entered into.

Further, it must be noted that this kind of stipulation is of particular importance to the contractor, for as a general rule, after the lapse of the period agreed upon therein, he may no longer be held accountable for whatever defects, deficiencies or imperfections that may be discovered in the work executed by him.

PNB V. CAFacts:

April 7, 1982- private respondents, as owners of a NACIDA-registered enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from petitioner, PNB, in the amount of P50,000 as evidenced by a Credit Agreement. The loan was to be amortized over a period of 3 years to end on March 20, 1985 at 12% interest annually. The said loan was secured by a Real Estate Mortgage over an agricultural land and Chattel Mortgage over a thermo plastic-forming machine.

The credit agreement provided that:

The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; Provided, that the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the maximum interest rate.

The promissory note, in turn, authorized PNB to raise the interest, at any time without notice, beyond the stipulated rate of 12% but only within the limits allowed by law.

February 17, 183- private respondents were granted an additional NACIDA loan of P50,000. PNB executed another promissory note which is to mature on April 1, 1985. It contained the same terms specified in the previous note. The parties also executed a new Credit Agreement, changing the amount from P50,000 to P100,000, with the same stipulations as the previous one.

August 1, 1984- petitioner sent a letter to respondents informing them that the interest rate of their CIGLF loan account was raised to 25% per annum plus a penalty of 6% per annum on past dues. PNB further increased the interest rate to 30% and 42 % a few months later.

Thereafter, private respondents exerted efforts to get PNB to re-adopt the 12% interest and to condone the present interest and penalties due, but to no avail.

December 15, 1987- private respondents filed a suit for specific performance against petitioner PNB and NACIDA praying to release the mortgage; pay damages and other relief which the court may find just and equitable.

The trial court dismissed the case. CA reversed the decision in favor of private respondents and disallowed the increases in interest rates.

Petitioners Contention: The increase in interest rates is authorized by the escalation clause specified in the Credit Agreement.

Issue: Whether or not the increase in interest rates made by petitioner is valid.

Held: No. The increase in interest rates made by petitioner is invalid.

It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind.

Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.

The Court disagrees with petitioners argument that the escalation clause gives it the unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) the Court held

. . . 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:

Art. 1308. 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 . . . . Hence, even assuming that the . . . loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Citation omitted.)

Private respondents are not also estopped from assailing the unilateral increases in interest rate made by petitioner bank. No one receiving a proposal to change a contract to which he is a party, is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance. In the case at bench, the circumstances do not show that private respondents implicitly agreed to the proposed increases in interest rate which by any standard were too sudden and too stiff.

ALLIED BANKING V. CA

FACTS:

Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches, Quezon City, covered by TCT No. 136779 in their name. On 30 June 1978 they leased the property to petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the first three (3) years, adjustable by 25% every three (3) years thereafter.1The lease contract specifically states in its Provision No. 1 that "the term of this lease shall be fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the option of the lessee."

Pursuant to their lease agreement, ALLIED introduced an improvement on the property consisting of a concrete building with a floor area of 340-square meters which it used as a branch office. As stipulated, the ownership of the building would be transferred to the lessors upon the expiration of the original term of the lease.

Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the subject property in favor of their four (4) children, namely, private respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D. Tanqueco, who accepted the donation in the same public instrument.

On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos notified petitioner ALLIED that they were no longer interested in renewing the lease.2ALLIED replied that it was exercising its option to renew their lease under the same terms with additional proposals.3Respondent Ruben D. Tanqueco, acting in behalf of all the donee-lessors, made a counter-proposal.4ALLIED however rejected the counter-proposal and insisted on Provision No. 1 of their lease contract.

When the lease contract expired in 1992 private respondents demanded that ALLIED vacate the premises. But the latter asserted its sole option to renew the lease and enclosed in its reply letter a cashier's check in the amount of P68,400.00 representing the advance rental payments for six (6) months taking into account the escalation clause. Private respondents however returned the check to ALLIED, prompting the latter to consign the amount in court.

An action for ejectment was commenced before the Metropolitan Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease contract void for being violative of Art. 1308 of the Civil Code On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed decision was affirmed.5On 20 February 1993, while the case was pending in the Court of Appeals ALLIED vacated the leased premises by reason of the controversy.6ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed upon hence valid and binding on both parties, and the exercise by petitioner of its option to renew the contract was part of their agreement and in pursuance thereof.

ISSUE:

Whether a stipulation in a contract of lease to the effect that the contract "may be renewed for a like term at the option of the lessee" is void for being potestative or violative of the principle of mutuality of contracts under Art. 1308 of the Civil Code?

Rule:

No. Decision of the Court of Appeals is REVERSED and SET ASIDE.

Article 1308 of the Civil Code expresses what is known in law as theprinciple of mutuality of contracts. It provides that "the contract must bind both the contracting parties; its validity or compliance cannot be left to the will of one of them." This binding effect of a contract on both parties is based on the principle that the obligations arising from the contracts have the force of law between the contracting parties, and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other free therefrom. The ultimate purpose is to render void a contract containing a condition which makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting parties.

An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to statutory restrictions, valid and binding on the parties. This option, which is provided in the same lease agreement, is fundamentally part of the consideration in the contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the rights is made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of the agreement.

The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. And while the lessee has a right to elect whether to continue with the lease or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter bound by the new lease agreement. Their rights and obligations become mutually fixed, and the lessee is entitled to retain possession of the property for the duration of the new lease, and the lessor may hold him liable for the rent therefor. The lessee cannot thereafter escape liability even if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and equality exists between the lessor and the lessee since they remain with the same faculties in respect to fulfillment.Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993 indicating its abandonment of whatever rights it had under the renewal clause. Consequently, what remains to be done is for ALLIED to pay rentals for the continued use of premises until it vacated the same, computed from the expiration of the original term of the contract on 31 March 1992 to the time it actually left the premises on 20 February 1993, deducting therefrom the amount of P68,400.00 consigned in court by ALLIED and any other amount which it may have deposited or advanced in connection with the lease. Since the old lease contract was deemed renewed under the same terms and conditions upon the exercise by ALLIED of its option, the basis of the computation of rentals should be the rental rate provided for in the existing contract.

Considering that petitioner ALLIED BANKING CORPORATION already vacated the leased premises as of 20 February 1993, the renewed lease contract is deemed terminated as of that date. However, petitioner is required to pay rentals to respondent lessors at the rate provided in their existing contract, subject to computation in view of the consignment in court of P68,400.00 by petitioner, and of such other amounts it may have deposited or advanced in connection with the lease.

What is the meaning of the clause maybe renewed for a like term at the option of the lessee?

With respect to the meaning of the clause "may be renewed for a like term at the option of the lessee," we sustain petitioner's contention that its exercise of the option resulted in the automatic extension of the contract of lease under the same terms and conditions. The subject contract simply provides that "the term of this lease shall be fourteen (14) years and may be renewed for a like term at the option of the lessee." As we see it, the only term on which there has been a clear agreement is the period of the new contract,i.e., fourteen (14) years, which is evident from the clause "may be renewed for a like term at the option of the lessee," the phrase"for a like term"referring to the period. It is silent as to what the specific terms and conditions of the renewed lease shall be. Shall it be the same terms and conditions as in the original contract, or shall it be under the terms and conditions as may be mutually agreed upon by the parties after the expiration of the existing lease?

BALUYOT V. CA

FACTS:

Petitioners in this case are residents and members of Cruz-na-Ligas Homesite Association, Inc. at Diliman, Quezon City.

Petitioners were contending that they have been in open, peaceful, adverse and continuous possession in the concept of an owner, for the rest of the land in Barrio Cruz-na-Ligas, consisting at least 42 hectares.

Since Oct. 1972, the said land is actually subject of quasi-judicial proceedings and administrative investigations by different branches of government. In fact the Bureau of land and the President of the RP issued endorsements confirming the rights of the bona fide residents of barrio Cruz-na-Ligas to the parcel of land.

In 1979, UP Board of Regents approved the donation of 9.2 hectares of the site that was endorsed by the President of RP. But after several negotiations with the residents, the area was increased to 15.8 hectares.

Due to the unreasonable demand of the residents for an area bigger than 15.8 hectares, the execution of the legal instrument to formalize the donation failed.

Later on, the association proposed to accept the offer of the UP to donate 15.8 hectares. UP manifested in writing its consent to the intended donation in favor with the association provided that they will agree and comply with the terms and conditions of the donation.

Defendant UP backed-out from the arrangement to donate directly to the Association the said land, instead, the former decided to negotiate the donation thru the Quezon City Govt under the terms and conditions not favorable to the residents of the said barrio.

The Association added to its cause of action in its petition the specific performance aside from the exclusion from the technical description of Certificate of Title of Defendant UP the 42 hectares covering Barrio Cruz-na-Ligas.

The said association also filed a petition for writ of preliminary injunction to restraint defendant UP from donating the area to the Quezon City Government.

After the TCs decision, UP assured the residents through motion of reconsideration that the donation of the 15.8 hectares to the Quezon City Govt will be for the benefit of the residents of the said barrio.

As the Quezon City Governments willing to comply with the terms and conditions of the donation made by UP, President Jose Abueva (UP), failed to deliver the certificate of title of the said land which enabled the QC government to register the deed of donation.

It reached the expiration period of 18 months, for the non-compliance of the QC govt under par.16 of the terms and conditions of the said donation.

President Abueva issued Administrative order No. 21 declaring the deed of donation revoked.

RTC ordered that petitioners are not parties to the said deed of donation.

CA set aside the TCs order and dismissed the case.

ISSUE: WON the petitioners has the cause of action and right to seek the enforcement of the deed of donation though they were not parties of such deed?

HELD: SC said Yes.

SC said that even if petitioners were not parties to the deed of donation, they have the right to seek its enforcement upon their allegation that they are intended beneficiaries of the donation to the Quezon City Government.

Art. 1311 provides, 2nd par. of the CC provides that: 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. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

Following requisites must be present in order to have a stipulation POUR AUTRUI:

There must be a stipulation in favor of a 3rd person.

The stipulation must be a part, not the whole of the contract.

The contracting parties must have clearly and deliberately conferred a favor upon a 3rd person, not a mere incidental benefit or interest.

The 3rd person must have communicated his acceptance to the obligor before its revocation.

Neither of the contracting parties bears the legal representation of the 3rd party.

There was stipulation in the said deed of donation that QC govt as the donee, is required to transfer to qualified residents, said lots by way of donation.

The stipulation is part of the conditions imposed by UP.

Par. 15 and 16 that the intent of the parties to the deed of donation was to favor petitioner by transferring the latter the lots occupied by them.

Through conferences, petitioners accepted the said donation and private respondents were aware of such acceptance.

Neither of private respondents acted in representation of the other. Each of the private respondents had its own obligations, in view of conferring a favor upon petitioners.

The trial courts decision about the donation has been revoked and petitioner had no clear and legal right to be protected was still tentative.

The SC ordered the decision of the CA be reversed and the case was remanded to the RTC.

INTEGRATED PACKAGING V. CA

Nature of the case: This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against petitioner.

FACTS:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound itself to deliver to petitioner reams of printing paper, coated, 2 sides basis, short grain in the following schedules: May and June 1978, August and September 1978, January 1979, March 1979, July 1979 and March 1979.

In accordance with the standard operating practice of the parties, the materials were to be paid within a minimum of thirty days and maximum of ninety days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three volumes of "Philacor Cultural Books" Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay would greatly prejudice petitioner.

From June 5, 1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of printing paper amounting to P766,101.70.

However, petitioner encountered difficulties paying private respondent said amount.

Accordingly, private respondent made a formal demand upon petitioner to settle the outstanding account.

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully comply with its contract with Philacor for the printing of books VIII, IX, X and XI.

Philacor demanded compensation from petitioner for the delay and damage it suffered on account of petitioners failure.

On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of P763,101.70 representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23, 1981.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court.

Petitioner filed this instant petition contending that the appellate courts judgment is based on erroneous conclusions of facts and law.

ISSUE: WON private respondent is liable for petitioners breach of contract with Philacor

HELD:

Petitioners contention lacks factual and legal basis, hence, bereft of merit.

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay therefore a sum of money or its equivalent (price).

Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices dated September and October 1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate price has been agreed upon for each delivery.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by petitioner with Philacor.

Private respondent is not a party to said agreements.

It is also not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct bearing on the contracts of petitioner with Philacor.

As pointed out by private respondent and not refuted by petitioner, the paper specified in the order agreement between petitioner and private respondent are markedly different from the paper involved in the contracts of petitioner with Philacor.

Instant petition is DENIED.

A&C MINIMART V. VILLAREAL

FACTS: Petitioner leased the six stalls of the one-storey commercial building from spouses Bonifacio under a lease agreement. However, the ownership of the subject property is under dispute between respondents Villareal and spouses Bonifacio. Spouses Bonifacio claimed to have purchased the property from spouses Sevilla, original owners of the disputed property.

On the other hand Respondents Villareal claimed ownership of the same alleging that in a separate case, the said property is sold to them at a public auction and they were adjudged as the sole and highest bidder. The said property was sold to satisfy the damages awarded to respondents Villareal against spouses Sevilla, original owners of the disputed property, arising from the murder of Jose Villareal.

Upon learning that the spouses Bonifacios claim of ownership over the subject property had been seriously denied by the Makati RTC, petitioner stopped paying its rentals on the subject property on March 2, 1999, in violation of the renewed Lease Contract.

The appellate court ordered petitioner A & C Minimart to pay respondents Villareal, a monthly interest of 3% on the total amount of rental and other charges not paid on time, in addition to the unpaid rental and other charges which the trial court ordered petitioner to pay.

ISSUE: Whether or not petitioner Minimart is obligated to pay the penalty interest of 3% per month to respondents Villareal pursuant to the Contract of Lease.

HELD: No. Petitioner Minimart is not obligated to pay the penalty interest because the Lease Contract, including the stipulation for the 3% penalty interest, was bilateral between petitioner and Teresita Bonifacio. So respondents cannot succeed to any contractual rights which may accrue to the spouses Bonifacio. Contracts produce an effect only between the parties who execute them. A contract cannot be binding upon and cannot be enforced by one who is not party to it.

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. The heir is not liable beyond the value of the property he received from the decedent.

Here, the Lease Contract was executed between the spouses Bonifacio and petitioner. None of the respondents had taken part in the contract in question nor entered into a contract with either the lessee or the lessor, as to an assignment of any right under the Lease Contract in question. Respondents claim ownership over the subject property, but not as a successor-in-interest of the spouses Bonifacios. They purchased the property in an execution sale from the spouses Sevilla. Thus, respondents cannot succeed to any contractual rights which may accrue to the spouses Bonifacio.

Although the respondents were adjudged to be entitled to rentals accruing from March 2, 1999, until the time the petitioner vacated the premises, the obligation to pay rent was not derived from the Lease Contract, but from a quasi-contract. In the present case, the spouses Bonifacio, who were named as the lessors in the Lease Contracts, are already adjudged not to be the real owners of the subject property. In Civil Case, the Makati RTC declared that the Deed of Sale, between the spouses Bonifacio and the spouses Sevilla was a forgery and, hence, did not validly transfer ownership to the spouses Bonifacio.

Since the spouses Bonifacio are not the owners of the subject property, they cannot unjustly benefit from it by collecting rent which should accrue to the rightful owners of the same. Hence, the Makati RTC had set up a bank account where the rent due on the subject property should be deposited and kept in trust for the real owners thereto.

LLENADO V. LLENADO

Facts:

The subject of this controversy is a parcel of land consisting of 1,554 sq. m. located in Barrio Malinta, Valenzula, Matro Manila and registered under the names of Eduardo and Jorge LLenado. The subject lot once formed part, owned by, and registered under the name of their father Cornelio Llenado.

On Dec. 2, 1975, Cornelio leased the subject lot to his nephew Romeo Llenado for a period of 5 yrs, renewable for another 5 yrs at the option of Cornelio.

On march 31, 1978, Cornelio, Romeo, and the latters father Orlando executed an agreement whereby Romeo assigned all his rights to his father Orlando over the unexpired portion of the aforesaid leased contract, and further agreed that Orlando shall have the option to renew the contract for 3 yrs commencing from Dec. 3, 1980- 1983, renewable for another 4 yrs up to 1987. That during that period the property cannot be sold, transferred, alienated or conveyed in whatever manner to any 3rd party.

Shortly thereafter, Cornelio and Orlando entered into a supplementary agreement. Orlando was given an additional option to renew the contract for an aggregate period of 10 yrs at 5 yr intervals. The provision was inserted in order to comply with the requirements of Mobil Philippines Inc. for the operation of the gasoline station subsequently built on the subject lot.

Upon the death of Orlando, his wife, Wenifreda, took over the operation of the gasoline station. Meanwhile, Cornelio sold a lot to his children through a deed of absolute sale denominated as Kasulatan sa Ganap na Bilihan for 160,000. As earlier stated, the subject lot was owned by Eduardo and Jorge. Several months thereafter, Cornelio passed away.

Sometime in 1993, Eduardo informed Wenifreda of his desire to take over the subject lot however the latter refused to vacate the premises prompting Eduardo to file a complaint of unlawful detainer. MTC rendered decision in favor of Eduardo however the RTC reversed MTCs decision. On appeal, CA reinstated MTCs decision hence this petition.

Issue: WON the sale of the subject lot by Cornelio is invalid for violation the prohibitory clause.

Held: No.

Petitioner claims that when Cornelio sold the subject lot to respondents Eduardo and Jorge, the Lease was in full force and effect thus, the sale violated the prohibitory clause rendering it invalid.

The petition lacks merit.

Under Art. 1311 of CC, the heirs are bound by the contract entered into by their predecessors-in-interest except when the rights and obligations are not transmissible by their nature, by their stipulation, or by provisions of law.

In the instant case, the lease subsisited at the time of the sale of the subject lot but when Orlando died on Nov 7, 1983, the lease was set to expire 26 days later or on Dec. 3, 1983, unless renewed by the heirs of Orlando. While the option to renew is an enforceable right, it must necessarily be first exercised to be given effect.

There is no dispute that the lessees were granted the option to renew the lease for another 4yrs yet there was never any positive act on the part of the petitioner before or after the termination of the original period to show their exercise of such option. The silence of the lessees cannot be taken to mean that they opted to renew the contract. Neither can the exercise of the option to renew can be inferred from their persistence to remain in the premises despite respondents demand from them to vacate.

As a result, there was no obstacle to the sale of the subject lot by Cornelio to respondents Eduardo and Jorge as the prohibitory clause under the lease contract was no longer in force.

SOLER V. CA

FACTS:

1986, Soler, a professional interior designer, met with Nida Lopez, manager of COMBANK Ermita, for plans to renovate branch office

Soler agreed to render services, at a professional fee of P10,000, assured by Lopez to be paid by the bank.

Soler asked for the blueprint of the building then paid a draftsman, engineer, architects and suppliers for the layout, quotation and measurements based on the design the bank wanted.

Soler submitted the drawings and designs to Lopez on time.

Subsequently, Soler demanded payment but Lopez ignored.

Contentions by the parties:

a. Lopez replied that she was not entitled to pay because the designs did not conform to the banks standard.b. COMBANK replied that there was no contract between Soler and COMBANK since Lopez merely invited Soler to join a bid to renovate, subject to the approval of the head office.

c. Soler contended that there was an offer and acceptance of professional services.

Soler filed for collection of professional fees and damages.

RTC ruled in favor of Soler but the CA ruled in favor of Lopez, saying COMBANK did not give its consent under Art 1318.

ISSUE:

WON there was a perfected contract between Soler and COMBANK & Lopez?

HELD:

YES. SC REVERSED CA decision and REINSTATED RTC.

There was a PERFECTED contract between Soler and COMBANK.

a. Art 1305 states that a contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

b. Art 1315 states that 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.

c. Art 1318 states that there is no contract unless the requisites of consent, object and cause are all present.

The STAGES of contract were complete The contract was commenced, perfected and consummated when Soler and Lopez met to discuss the details of the work, agreed to the professional fee of P10,000 for the designs before the December 1986 board meetings and submitted the designs.

There was a perfected oral or consensual contract which is the second stage of a contract, which happens the moment the parties agree on the terms of the contract.

Soler believed that she would be paid P10,000 upon submission of the designs in due time.

Lopez had AUTHORITY to engage the services of Soler.

a. During their meeting in 1986, Lopez even gave Soler specifications and blueprints of what were to be renovated in the branch.

b. Lopez also insisted that the designs be rushed to present to the bank.

c. COMBANK permitted Lopez to act within the scope of her authority and is estopped from denying such authority when Soler, in good faith, dealt with her as an officer of bank. (Art 1322)

d. Lopez also refused to return the submitted designs, which means that these were useful to her for the board meetings.

COLLECTION of professional fees and damages

Soler may be paid based on quantum meruit which recovers the reasonable value of services rendered to prevent unjust enrichment.

Aside from P10,000, Soler is entitled to actual, compensatory and exemplary damages for her expenses in hiring other professionals.

C.F. SHARP V. PIONEER INSURANCE Facts:

On august 1990, Wilfredo and Hernando applied with CF sharp for a job as sandblasters and painters in libya as advertised in a newspaper.

After passing the interviews and submitting the requirements, a Contract of Employment was executed between them. After which, they were required to attends seminars, open a bank account and were asked to return to CF sharp to ascertain the date of their deployment.

After a month, wilfredo and hernando were yet to be deployed, prompting them to request the release of the documents which CF SHARP allegedly refused to do. This led the private respondents to file a complaint before the POEA.

The poea issued an order finding the petitioner guilty for violating the labor code when it withheld or denied travel document to applicant workers before departure for monetary and financial considerations other than those authorized in the code. The POEA suspended the license of CF sharp until the return of the documents.

On march 1995 filed a complaint for breach of contract before the RTC. Pioneer insurance also filed a cross claim againt CF sharp and its vice president, john rocha based on an indemnity agreement that it would be jointly and severally liable for all the damages, losses and costs that it would suffer as surety.

RTC rendered a judgment favouring the respondents .The trial court ruled that there was a violation of the contract when C.F. Sharp failed to deploy and release the papers and documents of respondents, hence, they are entitled to damages. The trial court likewise upheld the cause of action of respondents against Pioneer Insurance, the former being the actual beneficiaries of the surety bond.

The CA held that there is no breach of contract because no contract of employment was perfected. However, it found petitioners liable for damages pursuant to art 21 of the civil code. It also limited the liability of pioneer insurance to 150,000.

Issue: whether there was a perfected contract of employment?

Held: YES. SC sustained the RTCs ruling.

The contract of employment entered into by the plaintiffs and the defendant C.F. Sharp is an actionable document, the same contract having the essential requisites for its validity. It is worthy to note that there are three stages of a contract: (1) preparation, conception, or generation which is the period of negotiation and bargaining ending at the moment of agreement of the parties. (2) Perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract. (3) Consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

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.10 An employment contract, like any other contract, is perfected at the moment (1) the parties come to agree upon its terms; and (2) concur in the essential elements thereof: (a) consent of the contracting parties, (b) object certain which is the subject matter of the contract and (c) cause of the obligation. By the contract, C.F. Sharp, on behalf of its principal, International Shipping Management, Inc., hired respondents as Sandblaster/Painter for a 3-month contract, with a basic monthly salary of US$450.00. Thus, the object of the contract is the service to be rendered by respondents on board the vessel while the cause of the contract is the monthly compensation they expect to receive. These terms were embodied in the Contract of Employment which was executed by the parties. The agreement upon the terms of the contract was manifested by the consent freely given by both parties through their signatures in the contract. Neither parties disavow the consent they both voluntarily gave. Thus, there is a perfected contract of employment.

GARCIA V. THIO FACTS

Sometime in February 1995, respondent Rica Marie S. Thio received from petitioner Carolyn M. Garcia a crossed check4dated February 24, 1995 in the amount of US$100,000 payable to the order of a certain Marilou Santiago Thereafter, petitioner received from respondent every month (specifically, on March 24, April 26, June 26 and July 26, all in 1995) the amount of US$3,0006andP76,5007on July 26,8August 26, September 26 and October 26, 1995.

In June 1995, respondent received from petitioner another crossed check9dated June 29, 1995 in the amount ofP500,000, also payable to the order of Marilou Santiago.

Consequently, petitioner received from respondent the amount ofP20,000 every month on August 5, September 5, October 5 and November 5, 1995 According to petitioner, respondent failed to pay the principal amounts of the loans (US$100,000 andP500,000) when they fell due.

Thus, on February 22, 1996, petitioner filed a complaint for sum of money and damages in the RTC of Makati City, against respondent, seeking to collect the sums of US$100,000, with interest thereon at 3% a month from October 26, 1995 andP500,000, with interest thereon at 4% a month from November 5, 1995, plus attorneys fees and actual damages.

For both loans, no promissory note was executed since petitioner and respondent were close friends at the time.15 Respondent denied that she contracted the two loans with petitioner and countered that it was Marilou Santiago to whom petitioner lent the money.

She claimed she was merely asked by petitioner to give the crossed checks to Santiago She issued the checks forP76,000 andP20,000 not as payment of interest but to accommodate petitioners request that respondent use her own checks instead of Santiagos.

February 28, 1997, the RTC ruled in favor of petitioner It found that respondent borrowed from petitioner the amounts of US$100,000 with monthly interest of 3% andP500,000 at a monthly interest of 4%:20 On appeal, the CA reversed the decision of the RTC and ruled that there was no contract of loan between the parties:

A perusal of the record of the case shows that [petitioner] failed to substantiate her claim that [respondent] indeed borrowed money from her.

There is nothing in the record that shows that [respondent] received money from [petitioner].

What is evident is the fact that [respondent] received a MetroBank [crossed] check dated February 24, 1995 in the sum of US$100,000.00, payable to the order of Marilou Santiago and a CityTrust [crossed] check dated June 29, 1995 in the amount ofP500,000.00, again payable to the order of Marilou Santiago, both of which were issued by [petitioner]

The checks received by [respondent], being crossed, may not be encashed but only deposited in the bank by the payee thereof, that is, by Marilou Santiago herself. Consequently, the receipt of the [crossed] check by [respondent] is not the issuance and delivery to the payee in contemplation of law since the latter is not the person who could take the checks as a holder, i.e., as a payee or indorsee thereof, with intent to transfer title thereto.

Neither could she be deemed as an agent of Marilou Santiago with respect to the checks because she was merely facilitating the transactions between the former and [petitioner].

ISSUE:Whether or not there were contracts of loan?

RULING:

A loan is a real contract, not consensual, and as such is perfected only upon the delivery of the object of the contract This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simpleloan itself shall not be perfected until the delivery of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount.26 It is undisputed that the checks were delivered to respondent. However, these checks were crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago Thus the main question to be answered is: who borrowed money from petitioner respondent or Santiago?

Petitioner insists that it was upon respondents instruction that both checks were made payable to Santiago She maintains that it was also upon respondents instruction that both checks were delivered to her (respondent) so that she could, in turn, deliver the same to Santiago

Furthermore, she argues that once respondent received the checks, the latter had possession and control of them such that she had the choice to either forward them to Santiago (who was already her debtor), to retain them or to return them to petitioner

Delivery is the act by which theresor substance thereof is placed within the actual or constructive possession or control of another Although respondent did not physically receive the proceeds of the checks, these instruments were placed in her control and possession under an arrangement. Hence according to SC in agreeing with the contentions of the petitioner that there is perfected contract of loan upon the receipt of the respondent of the 2 crossed checks issued and delivered by the petitioner.

PANGAN V. PERRERAS (Essential Requisites)FACTS:

Spouses Pangan were the owners of the lot and two-door apartment (subject properties) On1989, Consuelo agreed to sell to the respondents the subject properties for the price ofP540, 000.00.On the same day, Consuelo receivedP20,000.00 from the respondents as earnest money, evidenced by a receiptthat also included the terms of the parties agreement. Three days later, or onJune 5, 1989, the parties agreed to increase the purchase price fromP540, 000.00 toP580, 000.00.

In compliance with the agreement, the respondents issued two Far East Bank and Trust Company checks payable to Consuelo in the amounts ofP200, 000.00 andP250, 000.00.

OnJune 15, 1989. Consuelo, however, refused to accept the checks.She justified her refusal by saying that her children (the petitioners-heirs) co-owners of the subject properties did not want to sell the subject properties. For the same reason, Consuelo offered to return theP20,000.00 earnest money she received from the respondents, but the latter rejected it. Thus, Consuelo filed a complaint for consignation against the respondents.

FOR THE RESPONDENTS: They insisted on enforcing the agreement. They sought to compel Consuelo and the petitioners-heirs (who were subsequently impleaded as co-defendants) to execute a Deed of Absolute Sale over the subject properties.

FOR CONSUELO: She was justified in backing out from the agreement on the ground that the sale was subject to the consent of the petitioners-heirs who became co-owners of the property upon the death of her husband, Cayetano.Since the petitioners-heirs disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the requisite consent.

ISSUE:

Whether or not there was s perfected contract between the parties.

HELD:

YES. There was a perfected contract between the parties. That a thing is sold without the consent of all the co-owners does not invalidate the sale or render it void. Article 1318 of the Civil Code declares that no contract exists unless the following requisites concur:

consent of the contracting parties;(Which is the requisite involved in this case) object certain which is the subject matter of the contract; and

cause of the obligation established.

Article 493 of the Civil Code recognizes the absolute right of a co-owner to freely dispose of hispro indivisoshare as well as the fruits and other benefits arising from that share, independently of the other co-owners.Also, The explicit terms of the June 8, 1989 receiptprovide no occasion for any reading that the agreement is subject to the petitioners-heirs favorable consent to the sale.

Thus, when Consuelo agreed to sell to the respondents the subject properties, what she in fact sold was her undivided interest that, as quantified by the RTC, consisted of one-half interest, representing her conjugal share, and one-sixth interest, representing her hereditary share.

The presence of Consuelos consent and, corollarily, the existence of a perfected contract between the parties are further evidenced by the payment and receipt ofP20,000.00, an earnest money by the contracting parties common usage. The law on sales, specifically Article 1482 of the Civil Code, provides thatwhenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract.Although the presumption is not conclusive, as the parties may treat the earnest money differently, there is nothing alleged in the present case that would give rise to a contrary presumption.

In sum, the case contains no element, factual or legal, that negates the existence of a perfected contract between the parties.

JARDINE DAVIS V. CA

Facts:In 1992, when the country was at the height of the power crisis, petitioner Purefoods Corporation decided to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City to remedy and curtail further losses due to the series of power failures.

A bidding for the supply and installation of the generators was held wherein only three (3) bidders submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required. They are respondent FAR EAST MILLS SUPPLY CORPORATION (FEMSCO), MONARK and ADVANCE POWER. Purefoods, in a letter addressed to FEMSCO, confirmed the award of the contract to it.

Immediately, FEMSCO submitted the required performance bond and contractors all-risk insurance policy which PUREFOODS through its Vice President acknowledged in a letter. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the necessary materials. PUREFOODS, on the other hand, returned FEMSCOs Bidders Bond.

Later, however, PUREFOODS unilaterally canceled the award as "significant factors were uncovered and brought to their attention which dictate the cancellation and warrant a total review and re-bid of the project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting with PUREFOODS. However, before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (JARDINE), which incidentally was not one of the bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement.

The trial court rendered a decision ordering PUREFOODS to indemnify FEMSCO. The Court of Appeals affirmed the decision of the trial court. It also ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters contract with FEMSCO.

PUREFOODS argues that its letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's expressacceptance. Since PUREFOODS never received FEMSCOsacceptance,PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO.

JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters alleged contract with FEMSCO.

ISSUE:

WON there existed a perfected contract between PUREFOODS and FEMSCO

WON there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

HELD:

Issue 1 and 2.

There was a perfected contract between the parties and the acceptance of the offer was communicated which perfected the contract. There can be no contract unless the following requisites concur: (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.A contract binds both contracting parties and has the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. 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.To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied.For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that "advertisements for bidders are simply invitations to make proposals," applies. Accordingly, theTerms and Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the letter,i.e.,"This will confirm that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be performed and implemented. They were far from being conditions imposed on the perfection of the contract.

The decision to award the contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the Courts mind, there is already an acceptance made of the offer received by Purefoods.

But even grantingarguendothat the letter of petitioner PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract.

Even the tenor of the subsequent letter of petitioner PUREFOODS,i.e.,"Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place.

Issue 3.

While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, the court finds no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

SAN MIGUEL PROPERTIES V. HUANG

FACTS:

Petitioner offered two of its properties for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. Atty. Dauz signified her clients interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counter-offer.

On March 29, 1994, Atty. Dauz wrote another letter[3] proposing the following terms for the purchase of the properties, viz:

This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnest-deposit money, subject to the following conditions.

1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer.

2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary Management and Board approvals; and we initiate the documentation if there is mutual agreement between us.

3. In the event that we do not come to an agreement on this transaction, the said amount of P1,000,000.00 shall be refundable to us in full upon demand. . . .

Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate, indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties.

Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an offer of six months within which to pay.

On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization.

On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on the matter."[4] Her request was granted.

On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter was returning the amount of P1 million given as "earnest-deposit."[5]On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents option to purchase had already expired.

On August 16, 1994, respondent spouses filed a complaint for specific performance against .

Trial Court ruled in favor of petitioner. CA reversed the decision contending that there was a perfected contract.

Issue : WON there was a perfected contract. NO

RULING: In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale.

The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable.

The parties never got past the negotiation stage. The alleged "indubitable evidence" of a perfected sale was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.

The manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. Case is Dismissed.

LIMSON V. CA

FACTS:

Petitioner Lourdes Limson filed a complaint before the RTC alleging that in July 1978, respondent spouses De Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land in Barrio San Dionisio, Paraaque.

Respondent spouses informed her that they were the owners of the property.

On July 31, 1978, petitioner agreed to buy the property and gave P20,000 as earnest money.

Respondent spouses signed a receipt and gave her a 10-day option period to purchase the property.

Respondent informed her that the subject property was mortgaged to Emilio and Isidro Ramos and asked her to pay the purchase price.

On Aug. 5, 1978, petitioner agreed to meet the Ramoses to consummate the transaction, but due to failure of respondent and Ramoses to appear, no transaction was formalized.

On Aug. 11, 1978, she claimed that she was willing and ready to pay the balance of the purchase price, but the transaction did not materialize as the spouses failed to pay the back taxes of the property.

On Sept. 5, 1978, she was surprised to learn from the agent of the spouses that the property was the subject of a negotiation for the sale to Sunvar Realty Development Corporation.

In their answer, respondent spouses maintained that the option to buy the property had long expired and that there was no perfected contract to sell between them. They insisted that they negotiated with Sunvar only after the expiration of the period given to petitioner and her failure with her commitments thereunder.

RTC ruled in favor of petitioner.

On appeal, CA reversed the decision of the RTC; hence, the present appeal.

ISSUE: WON there was a perfected contract to sell between petitioner Limson and respondent De Vera Spouses.

HELD: No.

A scrutiny of facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the agreement between the parties was a CONTRACT of OPTION and not contract to sell.

An option is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property within a time certain or under, or in compliance with certain terms and conditions or which gives to the owner of the property the right to sell or demand a sale. It is sometimes called unaccepted offer. An option is not itself a purchase, but merely secures the privilege to buy.

A contract, like contract to sell, involves the meeting of minds between 2 persons whereby one binds himself, with respect to the other to give something or to render some service.

The Receipt provides:

Received from Lourdes Limson the sum of P20,000 xxx as earnest money to purchase a parcel of land owned by Lorenzo de Vera xxx at the price of 34.00 cash subject to condition and stipulation that have been agreed upon by the buyer and me which will form part of the receipt. Should transaction of the property not materialize not on fault of the buyer, I obligate myself to return the full amount of P20,000 earnest money with option to buy or forfeit on the fault of the buyer. Xxx. This option to buy is good within 10 days xxx. The receipt readily shows that the respondent and petitioner only entered into a contract of option; a contract by which respondent agreed with petitioner that the latter shall have the right to buy the formers property at a fixed price of P34.00/m2 within 10 days from July 31, 1978.

The consideration of P20,000 paid b petition was referred as earnest money. However, a careful examination of words used indicated that the money is not earnest money but OPTION MONEY.

EARNEST MONEY is part of the purchase price, while OPTION MONEY is the money given as a distinct consideration for an option contract.

EARNEST MONEY given only when there is already sale, while OPTION MONEY applies to a sale not yet perfected.

When the EARNEST MONEY is given, the buyer is bound to pay the balance, while when the would-be buyer gives OPTION MONEY, he is not required to buy, but may even forfeit it depending on the terms of the option.

There is nothing in the receipt which indicates that the P20,000 was part of the purchase price. Moreover, it was not shown that there was a perfected sale between the parties where earnest money was given.

Finally, when the petitioner gave the earnest money, the receipt did not reveal that she was bound to pay the balance of the purchase price.

The rule is that except where a formal acceptance is required, although the acceptance must be affirmatively and clearly made and evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or informal manner. On or before Aug. 10, 1978, the last day of the option period, no affirmative or clear manifestation was made by petitioner to accept the offer. Certainly, there was no concurrence of respondent spouses offer and petitioners acceptance within the option period. Consequently, there was no perfected contract to sell.

On Aug. 11, 1978, the option period expired and the exclusive right to buy the property of the respondent spouses ceased. According to petitioner: Respondent extended the option period until Aug. 31, 1978 UNTENABLE because the extension must not be implied, but categorical and must show the clear intention of the parties. According to petitioner: When the respondent spouses sent her telegram demanding full payment of the purchase price, it was an acknowledgement of their contract to sell UNTENABLE because there was no contract to sell between the petitioner and respondent spouses to speak of. The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject property by SUNVAR was perfectly valid and entered into in good faith.

TAYAG V. LACSON

Nature: Petition for review on certiorari of the Decision and the Resolution of respondent Court of Appeals in CA-G.R. SP No. 44883.Facts:

Respondents Angelica Tiotuyco Vda. de Lacson and her children were the registered owners of three parcels of land located in Mabalacat, Pampanga registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands, were administered by Renato Espinosa for the owner.

Mar. 17, 1996: A group of original farmers/tillers individually executed in favor of the petitioner separate Deeds of Assignment in which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable "when the legal impediments to the sale of the property to the petitioner no longer existed." The petitioner was also granted the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts.

July 24, 1996: Petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate agreements. However the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the landholding to the respondents.

Aug. 19, 1996: Petitioner filed a complaint with the RTC of San Fernando, Pampanga, against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and the respondents therein.

Issue: WON there is a perfected Option Contract.

Held: No

SC does not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts.

An option is 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. 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. It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract. The second party gets in praesenti, not lands, not an agreement that he shall have the lands, but the right to call for and receive lands if he elects.An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the property. Not being the registered owners of the property, the defendants-tenants could not legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON HABET."

Petition is PARTIALLY GRANTED. Decision of the CA nullifying the Orders of the RTC is AFFIRMED. The writ of injunction issued by the CA permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE.

Note:

In praesenti at the present time

NEMO DAT QUOD NON HABET - "no one can give what he does not have

FONTANA RESORT V. TAN

Facts:

In March 1997, respondent spouses Tan bought from petitioner RN Development Corp. (RNDC) two class D shares of stock in petitioner Fontana Resort and Country petitioner Fontana Resort and Country Club, Inc. worth P387,300.

These bought stocks entail a promise that Fontana Resort would construct a park with first-class leisure facilities in Clark Field, Pampanga, to be called Fontana Leisure Park (FLP).

It was also promised that FLP would be fully developed and operational by the first quarter of 1998 and that Fontana Resort Class D shareholders would be admitted to one membership in the country club, which entitled them to use park facilities and stay at a two-bedroom villa for five (5) ordinary weekdays and two (2) weekends every year for free.

Two years later, respondents filed before the Securities and Exchange Commission a complaint for the refund of purchase price of the bought stocks from the petitioners.

Respondents alleged that they had been deceived into buying Fontana Resorts shares because of petitioners fraudulent misrepresentations. That construction of FLP turned out to be still unfinished and the policies, rules, and regulations of the country club were obscure. But FLP said, at that time, most of the amenities are operational.

The spouses narrated that they were able to book and avail themselves of free accommodations at an FLP villa on a Saturday in the month of September. They requested that an FLP Villa again be reserved for their free use on another Saturday in October for their daughters 18th Birthday, but were refused by the petitioners saying that the petitioners could only avail of 5 ORDINARY DAYS, 1 SATURDAY and 1 SUNDAY, annually, and that respondents had consumed their free Saturday pass for the said year.

Spouses Tan, on the other hand, said that they were not informed of said rule regarding their free accommodation at FLP, and had they known about it, they would not have availed themselves of the free accommodations during Saturday last September. But this was countered by Fontana Resort saying that the respondents were duly informed of the privileges givent to them as seen in the propmotional materials for the country club, the Articles of Incorporation, and the By-Laws of FRCCI.

In January 1999, respondents attempted once more to book and reserve an FLP villa for their free use on April 1, 1999, a Thursday. Their reservation was confirmed by a certain Murphy Magtoto, and that later, another employee called them that the said reservation was cancelled because the FLP was already fully booked.

FLP countered the said allegation by saying that there was no confirmation to speak of because as early as the start of the year, FLP is already fully booked, and that there was no reservation number issued in favor of the Spouses Tan.

Hearing officer Bacalla of SEC ruled in favor of Spouses Tan by stating that the respondents were induced to buy shares which actually are empty promises. CA ruled by ordering Fontana Resort to provide for a refund to the spouses, hence, this petition before the SC.

Issue: WON there Fontana Resort committed fraud during the selling of stocks which would warrant the annulment or recission of the contract which the parties entered into?

RULING: Article 1390 of the Civil Code states that contracts are voidable and annullable when the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. However, they are susceptible of ratification.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

In this case respondents, in their complaint, cannot just simply pray for refund of the purchase price they had paid for their shares without specifically mentioning the annulment or recisision of the sale of said shares.

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

The general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation with full, creal, and convincing evidence because the presumption is the contract is has been entered into fairly and regularly.

In the case at bar, Spouses Tan have miserably failed to prove how petitioners employed fraud to induce them to buy the subject shares. It can only be expected that petitioners will advertise FLP in the most positive light in order to attract investor-members. There is no showing that in their sales talk to respondents, petitioner actually used insidious words or machination which led the respondents to buy the said shares. They appeared to be literate could no be easily deceived into parting with a substantial amount of money.

What is apparent to us is that respondents knowingly and willingly consented to buying the shares and were later on disappointed with the actual facilities and club membership benefits.

Similarly, we find no evidence on record that petitioners defaulted on any of their obligations that would have called for the rescission of the sale of the FRCCI shares to respondents. As to the issue of cancellation of the alleged confirmed reservation, the SC concluded that there is mix-up in the reservation process of petitioners. This demonstrates mere negligence on the part of the petitioners but not willful intention to deprive the spouses of their benefits. More so, it does not constitute default on the part of FLP to warrant recission of the contract. At most, Spouses Tan can only be awarded Nominal Damages as to the mix-up in the reservation process.

Respondents complaint sufficiently alleged a cause of action for the annulment of the contract. However, it was dismissed for lack of merit since they were not able to establish by preponderance of evidence that they are entitled to such annulment.

THE ROMAN CATHOLIC CHURCH V. PANTE (Sema)FELICIANO V. ZALDIVAR (Duran)

SWIFT FOODS V. MATEO, JR.

Nature: Petition for Review of the CA Nov. 15 Decision

Facts:

Petitioner Swift Foods, Inc., a corporation engaged in the manufacture, sale, and distribution of animal feeds entered a Trucking Agreement in 1984 with spouse respondents Jose and Irene Mateo, businessmen engaged in dealership in poultry and supply and trucking business in San Jose Del Monte, Bulacan.

The trucking agreement stipulates that respondents trucks hauled Swift feeds from its central office in Mandaluyong City to its various warehouses in Luzon wherein respondents are to deposit cash bonds of P100,000.00 per truck.

Several years after, only one truck remained in contract but still petitioner maintained respondents case bond which the latter requested the return of the excess but petitioner denied.

In 1995, same parties entered into a warehousing agreement wherein petitioners feeds are to be stored in respondents warehouses for a period of 2years. The agreement required respondents to post bond to secure compliance with the obligation, however, both parties proceeded with the enforcement of the contract on July of same year without compliance of such requirement.

For documenting and monitoring movements of the stocks, two documents were issued: the Daily Warehouse Stock Report (DSWD) for inventory of incoming stocks and Warehouse Issue Slip (WIS) which serves as the receipt of released stocks. WIS contains signature of the sales personnel as proof of receiving said stocks according to the stipulation of such agreement. Petitioners National Sales Manager would sometimes inspect the warehouses and such documents.

By February 1996, respondents delivered three land titles to petitioner as compliance of the warehousing agreement.

An inventory conducted by Swift personnels on May 9, 1996 revealed one missing bag which respondents paid on the same day. On May 20, 1996 petitioner informed respondents that it was terminating the contract effective May 13, 1996 due to the apparent violations of the respondents of the warehousing agreement.

Under paragraph V of the Warehousing Agreement, petitioner should only release stocks to Swifts sales personnel after they present a clearance to withdraw said stocks to ensure that stocks would only be released to authorized individuals and for payments to be collected accordingly.

Contrary to said provisions, Petitioner released stocks without necessary clearance as evidenced by the WIS which did not contain signatures of said personnels. Absence of said clearance, petitioner alleged that respondents have violated the contract. Said unauthorized release cost Swift a shortage of 2Million which respondents should be held accountable. Swift retained respondents 3 land titles pending full compliance citing paragraph XII of the agreement which states that the bond shall answer for whatever obligation the warehouse operator may have.

Respondents denied having violated the terms of the agreement as proof they presented a hand written letter from the sales rep of swift which instructed that the stocks be released directly to customers. Respondents maintained that the sales rep should answer for the cash shortages thereby demanding swift to return their three land titles which swift denied causing the former to file a complaint against the latter for the surrender of the certificates of title with damages and alleged that the cash shortage is attributable to petitioners own negligence in the supervision of its sales personnel.

Petitioner answered that it falls upon the respondents to be aware that the sales personnels acted violative of the procedure set in the agreement.

RTC ruled in favour of petitioner and ordered respondents to return the tittles and held that there was no breach as they merely followed instructions of the sales rep and that as respondents were first time warehouse operators, hence they could not have presumed knowledge of the warehouse operating procedures and that it is incumbent upon swift to conduct trainings and seminars for respondents. Further, RTC ruled the payment of 100k as attys fees and 200k as moral damages as well as costs of suit.

CA ruled no basis for the termination of the agreement and found basis for the 200k but deleted the Attys fess for lack of basis.

ISSUE: WON there was a breach of the contract committed by the respondents.

HELD:

The contract stated that the petitioner to pay a monthly 18k rental fee and in turn respondents are accountable for all the stocks duly received and released by them. Further, it provided procedures that respondents to observe. The contract is clear and having respondents acted to the contrary is a clear violation of the contract.

Respondents admitted that there were times when they released stocks directly to customers and not to the sales rep, when asked why, it further admitted that it did not read much less understand the warehouse agreement and simply followed all the verbal instructions given to him by the sales rep. such admittance clearly is a violation.

The court further ruled that ones newness to the business is not an excuse to violate clear terms of ones contract. A seasoned businessman such as the respondents should have been alert to the dangers of contravening the clear terms of a contract. Respondents should not have deviated from the from the procedure provided in the contract in the absence of any amendment therein as ordinary diligence required him to inquire with the head office whether changes being introduced were proper or authorized.

Respondents total reliance on the work of the petitioners sales personnel, contrary to the contrary to the contract is a clear act of negligence. The ruled reiterated that a contract is the law between the parties and those who are guilty of negligence in the performance of their obligations are liable for damages.

the reasoning of the respondents that it did not read nor understand the contract is a total ignorance of the obligations under the warehousing agreement and an abdication of his duties.

The court further stated that unless a contracting party cannot read or dos not understand the language in which the agreement was written, he is presumed to know the import of his contract and is bound thereby. Not having alleged any of the foregoing, respondent has no excuse for his actions. It was his nonchalance to his contractual duties and obligations, which facilitated the malfeasance of petitioners personnel and exposed petitioner to undue risks.

Ruled that respondents are liable for 150k as nominal damages payable to petitioner, 1ook