OUANO VS CA 211 SCRA 740 (1992


FACTS: Petitioner Oano is the owner and operator of M/V Don Julio Ouano. Petitioner leased said
vessel to respondent Rafols under a charter party for P60,000 a month with a down payment of
P30,000 and the remaining balance to be paid within 20 days after the departure from the port. It was
also stated in the charter contract that said vessel should not be sublet or sub-chartered by the
charterer without the knowledge or consent of the owner. Several days after the vessel was leased to
Rafols, Rafols contracted with Market Developers Inc (MADE) under a fixture note to transport 13,000
bags of cement to General Santos, consigned to Supreme Merchant Construction Supply Inc (SMCSI)
for a freightage of P46,150. Said amount was to be made to Rafols in two installments of P23,075
upon loading the cargo and upon receipt of the cargo by the consignee. The fixture note did not
contain any consent of Ouano.

Ouano filed a complaint with Cebu RTC against MADE as shipper, SMCSI as consignee and Rafols
as charterer seeking payment of P23,000 for freight charges. RTC Cebu held in favor of Ouano
however CA reversed the decision on the ground that MADE and SMCSI were not liable to Ouano for
the payment of freight charges.


HELD: It should be made clear that 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

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 sublesee as his right of recourse is against the original charterer.

The obligation of contracts is limited to the parties making them and ordinarily, only those who are
parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability
on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third
person contractually, an expression of assent by such person is necessary.

BA VS IAC 145 SCRA 419 (1986)

FACTS: Air Cargo and Travel Corporation (ACTC) has a bank account with Bank of America (BA)
with account number 19842-01-2. Minami, president of ACTC in Japan has an account with BA with
account number 24506-01-7. In March 1981, BA received a telex advice from Kyowa Bank to pay
$23,595 to Minami’s account but the bank deposited the amount to account number 24506-07-1

BA and Kyowa Bank had a prior agreement on from time to time, it can ask BA to pay amounts to a
third party (beneficiary) with BA afterwards billing Kyowa Bank the amount given to the beneficiary. It
was agreed that said note should indicate Kyowa’s signature and a confidential code.

According to ACTC, it was Tokyo Tourist Corporation who applied with Kyowa Bank to transfer
$23,595 payable to ACTC’s account with BA. ACTC alleged that the amount should be credited to its
account and demanded restitution but BA refused.

ACTC filed a case for restitution before Pasig RTC. RTC held in favor of ACTC.

ISSUE: W/N ACTC’s demand for restitution against BA is valid and proper

HELD: In the tested telex, considered either as a patent ambiguity or as a latent ambiguity, the
beneficiary is Minami. 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.

In Vargas Plow Factory vs. Central Bank, it was held that “the opening of a letter in favor of the
exporter becomes ultimately but the result of a stipulation pour atrui.” Similarly when Kyowa Bank
asked BA to pay a beneficiary the contract was between Kyowa and BA and it had a stipulation pour

It should be recalled that the tested telex originated from Kyowa at the behest of Tokyo Tourist
Corporation with whom ACTC had business dealings. Minami was the liaison officer of ACTC Japan.
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)

FACTS: Royal Lines and National Shipyards and Steel Corp (NASSCO) entered into a written
contract for the conversion of Royal Lines’ yacht into a passenger and cargo vessel for P121,980.
For additional work, NASSCO demanded additional payment which totaled to P196,245.37. Royal
Lines rejected the demand, claiming that it had not authorized the additional work. Trial court held in
favor of NASSCO.

Petitioner argues that it cannot be held liable for the additional work since it did not issue any written
authorization therefor.


HELD: 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.

In the instant case, 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.”

In stipulating such, 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)

FACTS: Spouses Celestino and Miguela Villanueva owned two parcels of land. Sometime in 1979,
Miguela made a loan with Philippine Veterans Bank (PVB) and presented the titles of said properties
as collateral. To acquire a bigger loan, Miguela executed a deed of sale for both properties but
without her husband’s consent. However, Miguela never received the loan she was expecting. Upon
inquiry with the Registry of Deeds, Miguela found out that the original titles of the said lots were
cancelled and new ones were issued in favor of PVB after the lots were foreclosed for non-payment of
the loan granted in the name of Andres Sebastian.

Miguela sought to repurchase said lots but her offers were rejected by the bank. PVB was then
placed under receivership under Monetary Board resolution no. 334 due to insolvency.

Ong claimed that he offered to purchase said lots which were acquired by PVB through foreclosure
and deposited P10,000 as earnest money. PVB approved his offer under the conditions: that the
purchase price shall be P110,000 (less P10,000 deposited earlier) within 15 days from receipt of

Ong alleged that he has better right to the said lots since PVB approved his offer and accepted his

ISSUE: W/N PVB’s approval of Ong’s offer for the subject properties is valid

HELD: 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

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 nto reach perfection. As such, he cannot invoke the resolution of the bank approving his
bid as basis for his alleged right to buy the disputed properties.

OBANA VS CA 135 SCRA 557 (1985)

FACTS: Sandoval is the owner and manager of Sandoval and Sons Rice Mill and is engaged in
buying and selling palay. Sandoval was approached by a Chan Lin who offered to purchase 170
cavans of wagwag rice at P37.25 per cavan, to be delivered the following day at Obana’s store with
payment to be made upon delivery.

As agreed, 170 cavans of rice were transported to Obana’s store the following day; Chan Lin
accompanied the shipment. When the driver tried to collect payment, Chan Lin was nowhere to be
found. The driver tried to collect from Obana but he refused stating that he had purchased the goods
from Chan Lin at P33.

Sandoval filed a suit for replevin against Obana. Municipal Trial Court ordered Obana to pay half of
the cost of the rice (P2,805). Obana appealed, CFI held in favor of Obana and dismissed the

On appeal with CA, CA ruled in favor of Sandoval ordering Obana to pay full price of the rice at


HELD: 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.

Based on the facts, there was a perfected sale. Art. 1475 NCC states that there is perfection when
consent upon the subject matter and price even if neither is delivered.

Art. 1475: The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.

Ownership of the rice was transferred to the vendee, Chan Lin upon its delivery to him at the place
stipulated pursuant to Art. 1477 and 1496.

At the very least, 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. As such, he should return the rice to Chan Lin or Sandoval. If the
rice had indeed been returned by Obana as he claimed, then Sandoval would have withdrawn the
case which did not happen. 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, 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)

FACTS: Petitioner Serra and respondent bank RCBC entered into a contract of lease with option to
buy a parcel of land in Masbate, under the following terms and conditions:
1. Subject property will be leased by RCBC from Serra for 25 years from June 1975 to 2000.
RCBC, however, will have the option to purchase the said land within 10 years from the
signing of the contract at a price not greater than P 210/square meter
2. Subject property shall be registered under Torrens system; failure to do so would result in the
lessor paying the lessee the market value of the building and improvements
3. Lessee will pay a monthly rental of P 700 per month
4. If RCBC fails to exercise the option to buy, all the accessions in the subject property shall
become the property of the lessor after the lease period

Serra processed the Torrens registration within 3 years however it was only in 1984 (9 years) that
RCBC informed the former of its intention to purchase the subject property for the amount of P 78,
430 (P 210 per square meter). However, Serra informed the bank he is no longer selling the property.

Serra argued that the contract drawn by RCBC, being a contract of adhesion, took undue advantage
on him when it set unfair terms. Moreover, the extraordinary inflation caused an unusual decrease in
the purchasing power of the Peso which could not be foreseen thus resulting to undue enrichment of

RTC held in favor of Serra but CA reversed the decision.


HELD: The contract is valid. Serra cannot argue to have been taken advantage of as he is an
educated man and his actions do not belie the fact that he was eager to too sell his property to RCBC.

As to the price of P 210/square meter, it is clear from the contract that the agreed price was such.
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. On the other hand 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.

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