OBLICON SD
APRIL 16, 2018
C2021
Floirendo V Metrobank
G.R. No. 148325 | September 3, 2007
Sandoval-Gutierrez, J
Group 2
Petitioner: Reynaldo P. Floirendo, Jr.
Respondent: Metropolitan Bank And Trust Company
Topic under which it is assigned:
Contracts – General Provisions – Binding Effect – Principle of Mutuality
Facts:
• Reynaldo P. Floirendo, Jr. is the president and chairman of the Board
of Directors of Reymill Realty Corporation
• On March 20, 1996, he obtained a loan of P1,000,000.00 from
Metrobank, Cagayan de Oro City Branch, respondent, to infuse
additional working capital for his company.
As security for the loan, petitioner executed a real estate mortgage in
favor of respondent bank over his 4 parcels of land.
• The loan was renewed for another year secured by the same real
estate mortgage.
Petitioner signed a promissory note dated March 14, 1997
fixing the rate of interest at 15.446% per annum for the first 30
days, subject to upward/downward adjustment every 30 days
thereafter; and
a penalty charge of 18% per annum based on any unpaid principal to
be computed from date of default until payment of the obligation.
The promissory note likewise provides that:
The rate of interest and/or bank charges herein stipulated, during
the term of this Promissory Note, its extension, renewals or other
modifications, may be increased, decreased, or otherwise
changed from time to time by the Bank without advance notice to
me/us in the event of changes in the interest rate prescribed by
law or the Monetary Board of the Central Bank of the Philippines,
in the rediscount rate of member banks with the Central Bank of
the Philippines, in the interest rates on savings and time
deposits, in the interest rates on the banks borrowings, in the
reserve requirements, or in the overall costs of funding or money
• On July 11, 1997, respondent bank started imposing higher interest
rates on petitioner’s loan which varied through the months, in fact, as
high as 30.244% in October 1997.
• petitioner could no longer pay the high interest rates charged, so
he negotiated for the renewal of his loan.
• Respondent bank agreed, provided that petitioner would pay the
arrears in interest amounting to the total sum of P163,138.33.
• Petitioner paid, but despite this, the bank, instead of renewing the
loan, filed a petition for foreclosure of mortgage which was
granted.
On August 17, 1998, the auction sale was set.
• On August 11, 1998, petitioner filed with the RTC, a complaint for
reformation of real estate mortgage contract and promissory
note.
He claimed that
real estate mortgage and the promissory note as contracts of
adhesion
the increased interest rates unilaterally imposed by respondent
bank are scandalous, immoral, illegal and unconscionable.
the terms and conditions of the real estate mortgage and the
promissory note are such that they could be interpreted by
respondent bank in whatever manner it wants, leaving petitioner
at its mercy.
Petitioner thus prayed for reformation of these documents and the
issuance of a TRO and a WPI to enjoin the foreclosure and sale at
public auction of his 4 parcels of land.
• RTC issued the TRO and the WPI.
• Respondent claimed that:
the interest stipulated by the parties in the promissory note is not per
annum but on a month to month basis.
The 15.446% interest appearing therein was good only for the first
30 days of the loan, subject to upward and downward adjustment
every 30 days thereafter.
The terms of the real estate mortgage and promissory note
voluntarily entered into by petitioner are clear and unequivocal.
There is, therefore, no legal and factual basis for an action for
reformation of instruments.
• RTC ruled in favor of respondents.
• Thus, current petition.
Issue:
WoN the mortgage contract and the promissory note express the true
agreement between the parties herein? NO.
Ratio
• Petitioner claims that
the escalation clause in the promissory note imposing 15.446%
interest on the loan for the first 30 days subject to
upward/downward adjustment every 30 days thereafter is illegal,
 excessive and arbitrary.
The determination to increase or decrease such interest rate is
primarily left to the discretion of respondent bank.
COURT: WE AGREE
• increases of interest rate unilaterally imposed by respondent bank
without petitioners assent are violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil Code
which provides:
Article 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
• binding effect of any agreement between the parties to a contract
is premised on two settled principles:
(1) that obligations arising from contracts have the force of law
between the contracting parties; and
(2) that there must be mutuality between the parties based on
their essential equality to which is repugnant to have one party
bound by the contract leaving the other free therefrom.
• Any contract which appears to be heavily weighed in favor of one
of the parties so as to lead to an unconscionable result is void.
Any stipulation regarding the validity or compliance of the contract
which is left solely to the will of one of the parties is likewise invalid.
Applying to the case:
• The provision in the promissory note authorizing respondent
bank to increase, decrease or otherwise change from time to time
the rate of interest and/or bank charges without advance notice
to petitioner, in the event of change in the interest rate prescribed
by law or the Monetary Board of the Central Bank of the
Philippines, does not give respondent bank unrestrained
freedom to charge any rate other than that which was agreed
upon.
Here, the monthly upward/downward adjustment of interest rate is
left to the will of respondent bank alone.
It violates the essence of mutuality of the contract.
• In Philippine National Bank v. Court of Appeals, and in later cases,
In order that obligations arising from contracts may have the force of
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
• In New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine
National Bank,
while it is true that escalation clauses are valid in maintaining
fiscal stability and retaining the value of money on long term
contracts, however, giving respondent an unbridled right to
adjust the interest independently and upwardly would completely
take away from petitioner the right to assent to an important
modification in their agreement, hence, would negate the element
of mutuality in their contracts. Such escalation clause would make
the fulfillment of the contracts dependent exclusively upon the
uncontrolled will of respondent bank and is therefore void.
• While the Usury Law ceiling on interest rate was lifted by Central Bank
Circular No. 905, nothing therein could possibly be read as granting
the bank carte blanche authority to raise interest rate to levels which
would either enslave its borrower or lead to hemorrhaging of his
assets.
• In Philippine National Bank v. Court of Appeals
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 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.
As to court’s authority to reduce/increase interest rates equitably
• Under Article 1310 of the Civil Code, courts are granted authority to
reduce/increase interest rates equitably, thus:
Article 1310. The determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide what
is equitable under the circumstances.
• The then proceeded to cite cases where they deemed the interest
rates imposed to be arbitrary, or iniquitous, unconscionable, and
exorbitant. As well as cases where they reduced such interest rates.
other Philippine National Bank v. Court of Appeals case,
Court disauthorized bank from unilaterally raising the interest rate on
the loan of private respondent from 18% to 32%, 41% and 48%.
In Almeda v. Court of Appeals, where the interest rate was increased
from 21% to as high as 68% per annum,
Court declared arbitrary the galloping increases in interest rate
imposed by respondent bank on petitioners loan, over the latters
vehement protests.
In Medel v. Court of Appeals, the stipulated interest of 5.5% per month
 or 66% per annum on a loan amounting to P500,000.00 was equitably
reduced for being iniquitous, unconscionable and exorbitant.
In Solangon v. Salazar, the stipulated interest rate of 6% per month or
72% per annum was found to be definitely outrageous and inordinate
and was reduced to 12% per annum which we deemed fair and
reasonable.
In Imperial v. Jaucian, we ruled that the trial court was justified in
reducing the stipulated interest rate from 16% to 1.167% or 14% per
annum and the stipulated penalty charge from 5% to 1.167% per
month or 14% per annum.
• In this case, respondent bank started to increase the agreed
interest rate of 15.446% per annum to 24.5% on July 11, 1997 and
every month thereafter; 27% on August 11, 1997; 26% on
September 10, 1997; 33% on October 15, 1997; 26.5% on November
27, 1997; 27% on December 1997; 29% on January 13, 1998;
30.244% on February 7, 1998; 24.49% on March 9, 1998; 22.9% on
April 18, 1998; and 18% on May 21, 1998. Obviously, the rate
increases are excessive and arbitrary.
• respondent bank unilaterally increased the interest rate without
petitioners knowledge and consent.
• petitioner negotiated for the renewal of his loan. As required by
respondent bank, he paid the interests due. Respondent bank
then could not claim that there was no attempt on his part to
comply with his obligation.
Yet, respondent bank hastily filed a petition to foreclose the
mortgage to gain the upperhand in taking petitioners 4 parcels of land
at bargain prices. Obviously, respondent bank acted in bad faith.
• In sum, the requisites for reformation of the mortgage contract
and promissory note are present in this case.
There has been meeting of minds of the parties upon these
documents.
However, these documents do not express the parties true
agreement on interest rates.
And the failure of these documents to express their agreement on
interest rates was due to respondent banks inequitable conduct.
Judgement:
WHEREFORE, we GRANT the petition. The Judgment dated February 22,
2001 of the RTC of Cagayan de Oro City, Branch 39 in Civil Case No. 98-476
is REVERSED. The real estate mortgage contract and the promissory note
agreed upon by the parties are reformed in the sense that any increase in the
interest rate beyond 15.446% per annum should not be imposed by
respondent bank without the consent of petitioner. The interest he paid in
excess of 15.446% should be applied to the payment of the principal
obligation.
Allied Bank v. CA
G.R. No. 124290; January 16, 1998
Bellosillio, J.
FACTS:
June 30, 1978: Petitioner Allied Banking Corporation (ALLIED) leased a
property owned by Spouses Filemon and Lucia Tanqueco for a P1000.00 per
month for the first 3 years, adjustable by 25% every 3 years thereafter. The
lease contract (Provision 1) states that, “the term of the 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.”
February 1988, the Tanqueco spouses executed a deed of donation over the
subject property in favor of their four (4) children.
February 13, 1991: a year before the expiration of the contract of lease, the
heirs of Tanquecos notified petitioner ALLIED that they were no longer
interested in renewing the lease.
ALLIED, on the other hand, replied that it was exercising its option to renew
their lease under the same terms as was agreed with the original lease of
contract with additional proposals. Respondent gave a counter proposal, which
the petitioner rejected, insisting instead on Provision No. 1.
When the lease contract expired in 1992, the heirs demanded that ALLIED
vacate the premises. Allied asserted its sole option to renew the lease and
enclosed in its letter reply advance rental payments for 6 months, taking into
account the escalation clause (P68,400.00).
An action for ejectment was commenced before the MeTC of Quezon City.
MeTC declared Provision No. 1 void for being violative of Art. 1308 of the Civil
Code. RTC and CA affirmed.
ALLIED insists that Provision No. 1 of the lease contract was mutually agreed
upon hence valid and binding on both parties, and exercise by petitioner of its
option to renew the contract was part of their agreement and in pursuance
thereof.
February 20, 1993: Pending court decision, ALLIED vacated the premises on
indicating its abandonment of whatever rights it had under the renewal clause.
 ALLIED to pay rentals for the continued use of the 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.
ISSUE:
 W/N a stipulation in a contract of lease stating “may be renewed for a
like term at the option of the lessee” is violative of the principle of
mutuality of contract.
  W/N a lessee has the legal personality to assail the validity of a deed
of donation executed by the lessor over the leased premises.
HELD:
 NO. 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.
Article 1308 provides that "the contract must bind both the contracting parties;
its validity or compliance cannot be left to the will of one of them." 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. Lessor is free to
give or not to give the option to the lessee. 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.
With respect to the meaning of the clause "may be renewed for a like term at
the option of the lessee," the court supports the 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.
 "may be renewed for a like term at the option of the lessee,"
 "the term of this lease shall be fourteen (14) years and may be
renewed for a like term at the option of the lessee."
 The only clear agreement is the period of the contract = 14 years
 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.
o Ledesma v. Javellana: Court ruled that when there is no
provision as to the terms of a renewal or extension implies a
renewal or extension upon the same terms as provided in the
original lease.'
 NO. ALLIED cannot assail the validity of the deed of donation, not
being a party thereto. A person who is not principally or
subsidiarily bound has no legal capacity to challenge the validity
of the contract. He must first have an interest in it.
 "Interest" within the meaning of the term means material interest, an
interest to be affected by the deed, as distinguished from a mere
incidental interest.
JUDGMENT:
CA decision REVERSED and SET ASIDE. 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.
Estate of K.H. Hemady vs Luzon Surety Co., Inc.
G.R. No. L-8437
November 28, 1956
Ponente – Justice J.B.L. Reyes
Belenzo – Group 4
ESTATE OF K. H. HEMADY, deceased,
LUZON SURETY CO., INC., claimant-Appellant.
Topic: C. Binding Effect -> 2. Principle of Relativity -> a. General Rule
Relevant Provision:
Art. 1311 par. 1. 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.
FACTS:
1. The Luzon Surety Co. had filed a claim against the Estate based
on twenty different indemnity agreements, or counter bonds, each
subscribed by a distinct principal and by the deceased K. H.
Hemady, a surety solidary guarantor in all of them, in
 consideration of the Luzon Surety Co.’s of having guaranteed, the
various principals in favor of different creditors.
2. The twenty counterbonds, or indemnity agreements, all contained
the following stipulations:chanroblesvirtuallawlibrary
a. “Premiums. — As consideration for this suretyship, the
undersigned jointly and severally, agree to pay the
COMPANY the sum of ________________ (P______)
pesos, Philippines Currency, in advance as premium
there of for every __________ months or fractions
thereof, this ________ or any renewal or substitution
thereof is in effect.
b. Indemnity. — The undersigned, jointly and severally,
agree at all times to indemnify the COMPANY and keep it
indemnified and hold and save it harmless from and
against any and all damages, losses, costs, stamps,
taxes, penalties, charges, and expenses of whatsoever
kind and nature which the COMPANY shall or may, at any
time sustain or incur in consequence of having become
surety upon this bond or any extension, renewal,
substitution or alteration thereof made at the instance of
the undersigned or any of them or any order executed on
behalf of the undersigned or any of them; chan
roblesvirtualawlibraryand to pay, reimburse and make
good to the COMPANY, its successors and assigns, all
sums and amount of money which it or its representatives
shall pay or cause to be paid, or become liable to pay, on
account of the undersigned or any of them, of whatsoever
kind and nature, including 15% of the amount involved in
the litigation or other matters growing out of or connected
therewith for counsel or attorney’s fees, but in no case
less than P25. It is hereby further agreed that in case of
extension or renewal of this ________ we equally bind
ourselves for the payment thereof under the same terms
and conditions as above mentioned without the necessity
of executing another indemnity agreement for the purpose
and that we hereby equally waive our right to be notified
of any renewal or extension of this ________ which may
be granted under this indemnity agreement.
c. Interest on amount paid by the Company. — Any and all
sums of money so paid by the company shall bear interest
at the rate of 12% per annum which interest, if not paid,
will be accummulated and added to the capital quarterly
order to earn the same interests as the capital and the
total sum thereof, the capital and interest, shall be paid to
the COMPANY as soon as the COMPANY shall have
become liable therefore, whether it shall have paid out
such sums of money or any part thereof or not.
d. Waiver. — It is hereby agreed upon by and between the
undersigned that any question which may arise between
them by reason of this document and which has to be
submitted for decision to Courts of Justice shall be
brought before the Court of competent jurisdiction in the
City of Manila, waiving for this purpose any other venue.
Our right to be notified of the acceptance and approval of
this indemnity agreement is hereby likewise waived.
e. Our Liability Hereunder. — It shall not be necessary for
the COMPANY to bring suit against the principal upon his
default, or to exhaust the property of the principal, but the
liability hereunder of the undersigned indemnitor shall be
jointly and severally, a primary one, the same as that of
the principal, and shall be exigible immediately upon the
occurrence of such default.”
 The Luzon Surety Co., prayed for allowance, as a contingent claim, of
the value of the twenty bonds it had executed in consideration of the
counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12 per
cent interest thereon.
 Before answer was filed, and upon motion of the administratrix of
Hemady’s estate, the lower court dismissed the claims of Luzon
Surety Co., on two grounds:chanroblesvirtuallawlibrary
 (1) that the premiums due and cost of documentary stamps were not
contemplated under the indemnity agreements to be a part of the
undertaking of the guarantor (Hemady), since they were not liabilities
incurred after the execution of the counterbonds;
 (2) that “whatever losses may occur after Hemady’s death, are not
chargeable to his estate, because upon his death he ceased to be
guarantor.”
ISSUE:
Whether or not losses that may occur after Hemady’s death are chargeable to
his estate? YES.
RULING:
 Under the present Civil Code (Article 1311), as well as under the Civil
Code of 1889 (Article 1257), the rule is that — “Contracts take effect
only as between the parties, their assigns and heirs, except in the case
where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.”
 While in our successional system the responsibility of the heirs for the
debts of their decedent cannot exceed the value of the inheritance
they receive from him, the principle remains intact that these heirs
 succeed not only to the rights of the deceased but also to his
obligations.
 Articles 774 and 776 of the New Civil Code (and Articles 659 and 661
of the preceding one) expressly so provide, thereby confirming Article
1311 already quoted.
 In Mojica vs. Fernandez, this Supreme Court ruled:chanrob
o Under the Civil Code the heirs, by virtue of the rights of
succession are subrogated to all the rights and obligations of
the deceased (Article 661) and cannot be regarded as third
parties with respect to a contract to which the deceased was
a party, touching the estate of the deceased
o The principle on which these decisions rest is not affected by
the provisions of the new Code of Civil Procedure, and, in
accordance with that principle, the heirs of a deceased person
cannot be held to be “third persons” in relation to any contracts
touching the real estate of their decedent which comes in to
their hands by right of inheritance; they take such property
subject to all the obligations resting thereon in the hands of
him from whom they derive their rights.”
 The binding effect of contracts upon the heirs of the deceased party is
not altered by the provision in our Rules of Court that money debts of
a deceased must be liquidated and paid from his estate before the
residue is distributed among said heirs (Rule 89).
o Reason- whatever payment is thus made from the estate is
ultimately a payment by the heirs and distributees, since the
amount of the paid claim in fact diminishes or reduces the
shares that the heirs would have been entitled to receive.
 Under our law, therefore, the general rule is that a party’s
contractual rights and obligations are transmissible to the
successors.
o The rule is a consequence of the progressive
“depersonalization” of patrimonial rights and duties
 From the Roman concept of a relation from person to person, the
obligation has evolved into a relation from patrimony to patrimony, with
the persons occupying only a representative position, barring those
rare cases where the obligation is strictly personal, i.e., is contracted
intuitu personae, in consideration of its performance by a specific
person and by no other.
 Re: Three Exceptions provided in Article Article 1311
o First, the nature of the obligation of the surety or guarantor
does not warrant the conclusion that his peculiar individual
qualities are contemplated as a principal inducement for the
contract.
 What did the creditor Luzon Surety Co. expect of K.
H. Hemady when it accepted the latter as surety in the
counterbonds?
 Nothing but the reimbursement of the moneys that the
Luzon Surety Co. might have to disburse on account
of the obligations of the principal debtors.
 This reimbursement is a payment of a sum of money,
resulting from an obligation to give; yand to the Luzon
Surety Co., it was indifferent that the reimbursement
should be made by Hemady himself or by someone
else in his behalf, so long as the money was paid to
it.
o Second exception of Article 1311, p. 1, is
intransmissibility by stipulation of the parties.
 Being exceptional and contrary to the general rule,
this intransmissibility should not be easily implied, but
must be expressly established, or at the very least,
clearly inferable from the provisions of the contract
itself, and the text of the agreements sued upon
nowhere indicate that they are non-transferable.
 Because under the law (Article 1311), a person who
enters into a contract is deemed to have contracted
for himself and his heirs and assigns, it is
unnecessary for him to expressly stipulate to that
effect
 Failure to expressly stipulate so is no sign that he
intended his bargain to terminate upon his death.
 Similarly, that the Luzon Surety Co., did not require
bondsman Hemady to execute a mortgage indicates
nothing more than the company’s faith and
confidence in the financial stability of the surety, but
not that his obligation was strictly personal.
o The third exception to the transmissibility of obligations
under Article 1311 exists when they are “not
transmissible by operation of law”.
 The provision makes reference to those cases where
the law expresses that the rights or obligations are
extinguished by death
 By contract, the articles of the Civil Code that regulate
guaranty or suretyship (Articles 2047 to 2084) contain
no provision that the guaranty is extinguished upon
the death of the guarantor or the surety.
 The law requires that qualities stated in Article 2057,
as cited by the ruling of the lower court, to be present
only at the time of the perfection of the contract of
guaranty.
 It is self-evident that once the contract has
become perfected and binding, the
supervening incapacity of the guarantor
 would not operate to exonerate him of the
eventual liability he has contracted; chan
roblesvirtualawlibrary
 and if that be true of his capacity to bind
himself, it should also be true of his integrity,
which is a quality mentioned in the article
alongside the capacity.
 The foregoing concept is confirmed by the next Article
2057, that runs as follows: “ If the guarantor should be
convicted in first instance of a crime involving
dishonesty or should become insolvent, the creditor
may demand another who has all the qualifications
required in the preceding article. The case is
excepted where the creditor has required and
stipulated that a specified person should be
guarantor.”
 From this article it should be immediately
apparent that the supervening dishonesty of
the guarantor (that is to say, the
disappearance of his integrity after he has
become bound) does not terminate the
contract but merely entitles the creditor to
demand a replacement of the guarantor.
 But the step remains optional in the creditor:
it is his right, not his duty; yhe may waive it if
he chooses,and hold the guarantor to his
bargain.
 Hence Article 2057 of the present Civil Code
is incompatible with the trial court’s stand that
the requirement of integrity in the guarantor
or surety makes the latter’s undertaking
strictly personal, so linked to his individuality
that the guaranty automatically terminates
upon his death.
 The contracts of suretyship entered into by K. H. Hemady in favor of
Luzon Surety Co. not being rendered intransmissible due to the nature
of the undertaking, nor by the stipulations of the contracts themselves,
nor by provision of law, his eventual liability thereunder necessarily
passed upon his death to his heirs.
 The contracts, therefore, give rise to contingent claims provable
against his estate under section 5, Rule 87
 “The most common example of the contigent claim is that which arises
when a person is bound as surety or guarantor for a principal who is
insolvent or dead. Under the ordinary contract of suretyship the surety
has no claim whatever against his principal until he himself pays
something by way of satisfaction upon the obligation which is secured.
When he does this, there instantly arises in favor of the surety the right
to compel the principal to exonerate the surety. But until the surety has
contributed something to the payment of the debt, or has performed
the secured obligation in whole or in part, he has no right of action
against anybody — no claim that could be reduced to judgment.
 Court’s conclusion is that the solidary guarantor’s liability is not
extinguished by his death, and that in such event, the Luzon Surety
Co., had the right to file against the estate a contingent claim for
reimbursement.
JUDGEMENT: Wherefore, the order appealed from is reversed, and the
records are ordered remanded to the court of origin, with instructions to
proceed in accordance with law.
Gilchrist v Cuddy
G.R. No. 108129. September 23, 1999
Barroga, Group 5
Petitioner: C.S. Gilchrist
Respondent: E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.
Ponente: TRENT, J.
Topic: General Provisions -> Inducement to Violate
Note: This case was decided prior to the effectivity of the New Civil Code
Facts:
 Cuddy was the owner of the film Zigomar and that on the 24th of April
he rented it to C. S. Gilchrist for a week for P125, and it was to be
delivered on the 26th of May, the week beginning that day.
 A few days prior to this Cuddy sent the money back to Gilchrist, which
he had forwarded to him in Manila, saying that he had made other
arrangements with his film. The other arrangements was the rental to
these defendants Espejo and his partner for P350 for the week and
the injunction was asked by Gilchrist against these parties from
showing it for the week beginning the 26th of May.
 Cuddy willfully violated his contract, he being the owner of the
picture, with Gilchrist because the defendants had offered him
more for the same period.
 The arrangement between Cuddy and the appellants (Espejo) for the
exhibition of the film by the latter on the 26th of May were perfected
after April 26, so that the six weeks would include and extend beyond
May 26. The appellants must necessarily have known at the time
they made their offer to Cuddy that the latter had booked or
contracted the film for six weeks from April 26.
  The appellants knowingly induced Cuddy to violate his contract with
another person. But there is no specific finding that the appellants
knew the identity of the other party.
Issues:
W/N Espejo and the other appellants (as 3rd parties) are liable violation of the
contract of Gilchrist and Zuddy? Yes.
Ratio:
On Competition as a defense:
 The appellants claim that they had a right to do what they did. There was
no valid and binding contract between Cuddy and Gilchrist and that,
therefore, they had a right to compete with Gilchrist for the lease of the
film, the right to compete being a justification for their acts.
 If there had been no contract between Cuddy and Gilchrist this defense
would be tenable, but the mere right to compete could not justify the
appellants in intentionally inducing Cuddy to take away the appellee's
contractual rights.
 Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone
has a right to enjoy the fruits and advantages of his own enterprise,
industry, skill and credit. He has no right to be free from malicious and
wanton interference, disturbance or annoyance. If disturbance or loss
come as a result of competition, or the exercise of like rights by others, it
is damnum absque injuria, unless some superior right by contract or
otherwise is interfered with."
On the liability of a 3rd person:
 It is said that the ground on which the liability of a third party for interfering
with a contract between others rests, is that the interference was
malicious.
 Contrary view is taken by the Supreme Court of the United States in the
case of Angle vs. Railway Co. The only motive for interference by the
third party in that case was the desire to make a profit to the injury of
one of the parties of the contract. There was no malice in the case
beyond the desire to make an unlawful gain to the detriment of one of the
contracting parties.
 In the case at bar the only motive for the interference with the Gilchrist
— Cuddy contract on the part of the appellants was a desire to make a
profit by exhibiting the film in their theater.
 There was no malice beyond this desire; but this fact does not relieve them
of the legal liability for interfering with that contract and causing its breach.
It is, therefore, clear, under the above authorities, that they were
liable to Gilchrist for the damages caused by their acts, unless they
are relieved from such liability by reason of the fact that they did not know
at the time the identity of the original lessee (Gilchrist) of the film.
 The liability of the appellants arises from unlawful acts and not from
contractual obligations, as they were under no such obligations to induce
Cuddy to violate his contract with Gilchrist.
 Article 1902 of that code provides that a person who, by act or omission,
causes damages to another when there is fault or negligence, shall be
obliged to repair the damage do done. There is nothing in this article
which requires as a condition precedent to the liability of a tort-feasor
that he must know the identity of a person to whom he causes
damages.
Judgment:
For the foregoing reasons the judgment is affirmed, with costs, against the
appellants.
Other (possibly) important stuff:
 The case at bar is somewhat novel, as the only contract which was broken
was that between Cuddy and Gilchrist, and the profits of the appellee
depended upon the patronage of the public, for which it is conceded the
appellants were at liberty to complete by all fair does not deter the
application of remarked in the case of the "ticket scalpers" , the novelty
of the facts does not deter the application of equitable principles.
 Gilchrist was facing the immediate prospect of diminished profits by
reason of the fact that the appellants had induced Cuddy to rent to them
the film Gilchrist had counted upon as his feature film.
 It is quite apparent that to estimate with any decree of accuracy the
damages which Gilchrist would likely suffer from such an event would be
quite difficult if not impossible. If he allowed the appellants to exhibit the
film in Iloilo, it would be useless for him to exhibit it again, as the desire of
the public to witness the production would have been already satisfied.
GEO. W. DAYWALT, plaintiff-appellant, vs. LA CORPORACION DE LOS
PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.
G.R. No. L-13505 || February 4, 1919
STREET, J.
Group 6
TOPIC: General Provisions > Inducement to Violate
DOCTRINE: It is enough if the wrongdoer, having knowledge of the existence
of the contract relation, in bad faith sets about to break it up. Whether his
motive is to benefit himself or gratify his spite by working mischief to the
employer is immaterial. Malice in the sense of ill-will or spite is not essential.
The stranger cannot become more extensively liable in damages for the
nonperformance of the contract than the party in whose behalf he
intermeddles. To hold the stranger liable for damages in excess of those that
could be recovered against the immediate party to the contract would lead to
results at once grotesque and unjust.
ISSUE: W/N the defendant is liable for damages for interfering in the contract
between plaintiff and Endencia – NO
APPLICATION TO THE CASE:
Defendant’s advice to Endencia not to carry the contract into effect does not
constitute actionable interference because the defendant believed in good
faith that the contract could not be enforced and that Endencia would be
wronged if it should be carried into effect. Said advice was prompted by “no
mean or improper motive”.
Also, the damages claimed by plaintiff cannot be recovered from Endencia
because they are special damages which were not within the contemplation of
the parties when the contract was made and because said damages are too
remote to be the subject of recovery. Thus, plaintiff also cannot recover from
defendant who cannot be more extensively liable than the principal in the
contract.
PERTINENT FACTS:
1. Endencia executed three successive contracts whereby she obligated
herself to convey to the plaintiff, a tract of land as soon as she receives
the Torrens title.
2. Prior to the issuance of the title she discovered that the land area was
large than she thought and she became reluctant.
3. When the title was issued she gave the certificate to the chief official
of the defendant corporation who refused to release it to the plaintiff.
4. Eventually, the plaintiff prevailed over Endencia in a suit for specific
performance which compelled the defendant to hand over the
certificate.
5. The plaintiff sought to recover damages “based on a liability derived
from the wrongful interference of the defendant in the performance of
the contract between the plaintiff and Endencia.”
6. The plaintiff alleged that he failed to profit from another contract which
involved sugar growing and milling on the land because of the
defendant’s interference.
G.R. No. 120554 September 21, 1999
SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG, respondents.
QUISUMBING, J.:
FACTS
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok,
entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI).
Subjects of four lease contracts were premises located at Soler Street,
Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts
each had a one-year term. They provided that should the lessee continue to
occupy the premises after the term, the lease shall be on a month-to-month
basis.
When the contracts expired, the parties did not renew the contracts, but Tek
Hua continued to occupy the premises. In 1976, Tek Hua Trading Co. was
dissolved. Later, the original members of Tek Hua Trading Co. including
Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent
corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek
Giok's grandson, petitioner So Ping Bun, occupied the warehouse for his own
textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua
Enterprises, informing the latter of the 25% increase in rent effective
September 1, 1989. The rent increase was later on reduced to 20% effective
January 1, 1990, upon other lessees' demand. Again on December 1, 1990,
the lessor implemented a 30% rent increase. Enclosed in these letters were
new lease contracts for signing. DCCSI warned that failure of the lessee to
accomplish the contracts shall be deemed as lack of interest on the lessee's
part, and agreement to the termination of the lease. Private respondents did
not answer any of these letters. Still, the lease contracts were not rescinded.
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal
contracts of lease with DCCSI in favor of Trendsetter Marketing. So Ping Bun
claimed that after the death of his grandfather, So Pek Giok, he had been
occupying the premises for his textile business and religiously paid rent.
DCCSI acceded to petitioner's request. The lease contracts in favor of
Trendsetter were executed.
In the suit for injunction, private respondents pressed for the nullification of the
lease contracts between DCCSI and petitioner. They also claimed damages.
RTC ruled in favor of the respondents, annulling the four Contracts of Lease
between defendant So Ping Bun and defendant DCCSI over the premises
located at, Soler Street, Binondo Manila, making permanent the writ of
preliminary injunction issued by this Court on June 21, 1991, and ordering So
Ping Bun to pay Tek Hua P500,000 as atty’s fees.
CA affirmed RTC, but reduced amount of atty’s fees to P200,000.
ISSUE
WON So Ping Bun is guilty of tortuous interference of contract
HELD
YES. However, So Ping Bun is not liable to pay damages because his motive
in committing tortuous interference is not solely to harm Tek Hua, but for the
furtherance of his own business interests.
Tort Interference
Damage is the loss, hurt, or harm which results from injury, and damages are
the recompense or compensation awarded for the damage suffered. One
becomes liable in an action for damages for a nontrespassory invasion of
another's interest in the private use and enjoyment of asset if (a) the other
has property rights and privileges with respect to the use or enjoyment
interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a
legal cause of the invasion, and (d) the invasion is either intentional and
unreasonable or unintentional and actionable under general negligence rules.
The elements of tort interference are: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of contract; and (3)
interference of the third person is without legal justification or excuse.
A duty which the law of torts is concerned with is respect for the property of
others, and a cause of action ex delicto may be predicated upon an unlawful
interference by one person of the enjoyment by the other of his private
property. This may pertain to a situation where a third person induces a party
to renege on or violate his undertaking under a contract.
In the case before us, petitioner's Trendsetter Marketing asked DCCSI to
execute lease contracts in its favor, and as a result petitioner deprived
respondent corporation of the latter's property right. Clearly, and as
correctly viewed by the appellate court, the three elements of tort
interference above-mentioned are present in the instant case.
Motive for Tort Interference
As a general rule, justification for interfering with the business relations
of another exists where the actor's motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to the other.
It is not necessary that the interferer's interest outweigh that of the party whose
rights are invaded, and that an individual acts under an economic interest that
is substantial, not merely de minimis, such that wrongful and malicious motives
are negatived, for he acts in self-protection. Moreover justification for
protecting one's financial position should not be made to depend on a
comparison of his economic interest in the subject matter with that of others. It
is sufficient if the impetus of his conduct lies in a proper business interest rather
than in wrongful motives.
In the instant case, it is clear that petitioner So Ping Bun prevailed upon
DCCSI to lease the warehouse to his enterprise at the expense of
respondent corporation. Though petitioner took interest in the property
of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him.
Damages
Sec. 1314 of the Civil Code categorically provides also that: "Any third person
who induces another to violate his contract shall be liable for damages to the
other contracting party." Petitioner argues that damage is an essential element
of tort interference, and since the trial court and the appellate court ruled that
private respondents were not entitled to actual, moral or exemplary damages,
it follows that he ought to be absolved of any liability, including attorney's fees.
It is true that the lower courts did not award damages, but this was only
because the extent of damages was not quantifiable.
While we do not encourage tort interferers seeking their economic interest to
intrude into existing contracts at the expense of others, however, we find that
the conduct herein complained of did not transcend the limits forbidding
an obligatory award for damages in the absence of any malice. The
business desire is there to make some gain to the detriment of the contracting
parties. Lack of malice, however, precludes damages. But it does not relieve
petitioner of the legal liability for entering into contracts and causing breach of
existing ones. The respondent appellate court correctly confirmed the
permanent injunction and nullification of the lease contracts between DCCSI
and Trendsetter Marketing, without awarding damages. The injunction saved
the respondents from further damage or injury caused by petitioner's
interference.
The award of atty’s fees is decreased to P100,000.
Lagon v CA
G.R. No. 119107 | March 18, 2005
Corona, J.
Topic: Contracts, I. General Provisions, U. Inducement to Violate
Petitioner: Jose Lagon
Respondent: Court of Appeals and Menandro Lapuz
Facts:
1. June 23, 1982: petitioner purchased 2 parcels of land located at
Tacurong, Sultan Kudarat from the estate of Bai Tonina Sepi
2. Private respondent filed a complaint for torts and damages against
petitioner before the RTC of Sultan Kudarat
3. Private respondent claimed that he entered into a contract of lease
with the late Bai Tonina Sepi Mengelen Guiabar over 3 parcels of land
in Sultan Kudarat, Maguindanao beginning 1964
1. One of the provisions agreed upon: private respondent would
put up commercial buildings which would be leased to new
tenants
2. The rentals to be paid by the tenants would answer for the
rent which private respondent should pay for the lease of the
land
3. The lease contract ended in 1974 but the construction of the
buildings were not yet complete thus it was renewed
4. When Bai Tonina Sepi died, private respondent started remitting his
rent to the court- appointed administrator of her estate
1. When the administrator advised him to stop collecting rentals
from the tenants of the buildings, he discovered that petitioner
was representing himself as the new owner of the property
and had been collecting rentals from the tenants
2. Respondent then filed a complaint against the petitioner
5. Petitioner’s answer:
1. Denied that he induced Bai Tonina’s heirs to sell the property
to him
1. The heirs needed money to pay off the obligations of
the deceased
2. Denied interfering with private respondent's leasehold rights
because there is no lease contract covering the property when
he bought it
1. Before he bought the property, he went to Atty.
Benjamin Fajardo (lawyer who notarized the lease
contract between private respondent and Bai Tonina
Sepi) to verify if the parties renewed the lease
contract after it expired in 1974
2. Atty. Fajardo showed him four copies of the lease
renewal but were all unsigned
3. Petitioner presented in court a certification from the
Office of the Clerk of Court that no record of any lease
contract notarized by Atty. Fajardo had been entered
into their files
3. He only learned of the alleged lease contract when informed
that private respondent was collecting rent from the tenants
4. Petitioner filed his counterclaim and prayed for the payment
of actual and moral damages
6. July 29, 1986: the court ruled in favor of private respondent, dismissed
petitioner’s counterclaim
1. Contract of Lease executed by Bai Tonina in favor of the
plaintiff on November 6, 1974 was notarized by Atty. Fajardo
and entered into his notarial register is valid and binding for
10 years
2. Respondent is lawful owner of the buildings on the property
and is entitled to their possession and the collection of rentals
within the period covered by the lease contract
3. Petitioner ordered to pay rentals of the buildings on the lots
covered in favor of the plaintiff for October 1, 1978 up to
October 31, 1984, including accrued interests in the total
amount of P506, 850.56, to continue to bear interest at legal
rate of 12% per annum until the whole amount is fully paid,
moral damages for P1.062M, actual or compensatory
damages (P312,500), exemplary or corrective damages
(P187,500), temperate or moderate damages for
(P62,500.00), nominal damages (P62,500.00); atty’s fees
(P125,000.00); expenses of litigation (P62,500.00), interest
(P900k)
7. Respondent is restored to the possession of his commercial buildings
for 73 mos. – the equivalent of the total period for which he was
prevented from collecting the rentals from the tenants from October 1,
1978 up to October 31, 1984
8. Petitioner appealed to the CA
1. CA modified the assailed judgment of the TC
1. Award for moral damages, compensatory, exemplary
damages, temperate or moderate damages, and
nominal damages as well as expenses of litigation in
the amount of P62,500.00 and interests are deleted

2. Award for attorney's fees is reduced to P30,000.00;


3. Respondent ordered to pay to the pet actual damages
(P178,425) for the rentals he collected and minus
(P42,700) representing rentals due the respondent
computed at P700.00 per month, with interest at the
rate until fully paid
2. Petitioner disclaimed knowledge of any lease contract
between Bai Tonina and private respondent
3. Private respondent insisted it was impossible for petitioner not
to know bc was aware that respondent is collecting rentals
4. CA: for petitioner to become liable for damages, he must have
known of the lease contract and must have acted with malice
or bad faith when he bought the subject property
9. Petitioner argues:
 1. CA erred in holding that petitioner is liable for interference of 2. Nonetheless, the notarized copy of the lease
contractual relation under Article 1314 of the NCC contract presented in court appeared to be
2. CA erred in not holding that private respondent is precluded incontestable proof that private respondent and
from recovering because of laches 
 the late Bai Tonina actually renewed their lease
contract
3. CA erred in holding petitioner liable for actual damages and
1. Rule: notarized document continues to be
attorney's fees
prima facie evidence of the facts that gave
4. CA erred in dismissing petitioner's counterclaims
rise to its execution and delivery until
overcome by clear, strong and convincing
Issue/s:
evidence
1. Whether petitioner’s purchase of the subject property
5. The second element requires there be knowledge on the part of the
constituted tortuous interference for which petitioner should be
interferer that the contract exists
held liable for damages – NO
1. Knowledge of the subsistence of the contract: essential
element to state a cause of action for tortuous interference
Judgment:
1. Defendant cannot be made liable for interfering with
WHEREFORE, premises considered, the petition is hereby GRANTED. The
a contract he is unaware of
assailed decision of the Court of Appeals is hereby REVERSED and SET
2. Not necessary to prove actual knowledge but must be
ASIDE. No costs.
aware of the facts which, if followed by a reasonable
inquiry, will lead to a complete disclosure of the
Ratio:
contractual relations and rights of the parties in the
2. Article 1314: any third person who induces another to violate his
contract
contract shall be liable for damages to the other contracting party
2. Here, petitioner claims that he had no knowledge of the
1. The tort recognized here: interference with contractual
lease contract; his sellers (heirs of Bai Tonina) also did not
relations
inform him of any existing lease contract
2. Interference is penalized because it violates the property
3. SC: petitioner’s contention is with merit
rights of a party in a contract to reap the benefits that should
1. Conducted own personal investigation and
result therefrom
inquiry and unearthed no suspicious
3. So Ping Bun v. CA: So Ping Bun occupied the premises which the
circumstance which would have made a cautious
corporation of his grandfather was leasing from private respondent,
man probe deeper and watch out for any conflicting
without the knowledge and permission of the corporation; the
claim over the property
corporation sued him for tortuous interference because it was
2. An examination of the entire property's title bore
prevented from using the premises for its business
no indication of the leasehold interest of private
1. Elements of tortuous interference with contractual
respondent and the registry of property also had
relations:
no record
1. Existence of a valid contract
3. Assuming that petitioner knew of the contract,
2. Knowledge on the part of the third person of the
such knowledge alone was not sufficient to make
existence of the contract
him liable for tortuous interference
3. Interference of the third person without legal
6. The third element: petitioner may be held liable only when there was
justification or excuse
no legal justification or excuse for his action or when his conduct was
4. For the first element, the existence of a valid contract must be duly
stirred by a wrongful motive
established
1. Defendant must have acted with malice or been driven by
1. To prove this, private respondent presented in court a
purely impious reasons to injure the plaintiff to sustain
notarized copy of the lease renewal
case for tortuous interference
1. The contract appeared notarized but the notarization
2. Records do not support private respondent’s allegation
only proved its due execution and delivery and not the
that petitioner induced the heirs of Bai Tonina to sell the
veracity of its contents
property to him
 1. "Induce" – refers to situations where a person
causes another to choose one course of conduct
by persuasion or intimidation
2. Records show that the heirs’ decision to sell the
property was completely of their own volition and
petitioner did absolutely nothing to influence their
judgment
3. Private respondent did not present any evidence
to support his claim
7. Even assuming that private respondent was able to prove the
renewal of his lease contract with Bai Tonina, the fact was that
he was unable to prove malice or bad faith on the part of
petitioner in purchasing the property thus, the claim of tortuous
interference was never established
8. So Ping Bun: general rule is that “justification for interfering with the
business relations of another exists where the actor's motive is to
benefit himself. Such justification does not exist where the actor's
motive is to cause harm to the other.”
1. “[N]ot necessary that the interferer's interest outweigh that of
the party whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not merely de
minimis, such that wrongful and malicious motives are
negatived, for he acts in self-protection.”
2. “[J]ustification for protecting one's financial position should not
be made to depend on a comparison of his economic interest
in the subject matter with that of the others. It is sufficient if
the impetus of his conduct lies in a proper business interest
rather than in wrongful motives.”
9. Petitioner's purchase of the subject property: merely an
advancement of his financial or economic interests, absent any
proof that he was enthused by improper motives
10. Gilchrist v. Cuddy: a person is not a malicious interferer if his
conduct is impelled by a proper business interest
11. This case is one of damnun absque injuria or damage without
injury
1. "Injury" – legal invasion of a legal right
2. "Damage" – the hurt, loss or harm which results from the injury
12. BPI Express Card Corporation v. CA: there can be damage without
injury where the loss or harm is not the result of a violation of a
legal duty
1. Consequences must be borne by the injured person
alone since the law affords no remedy for damages
resulting from an act which does not amount to legal
injury or wrong
2. Lack of malice in the conduct complained of precludes
recovery of damages
13. Attorney's fees awarded by the appellate court to private respondent:
cannot be recovered
1. Article 2208, CC: attorney's fees may be awarded only when
it has been stipulated upon or under the instances provided
therein
2. In the concept of actual damages, the award for attorney's
fees must have clear, factual and legal bases (in this case,
there are no such bases)
14. Regarding the dismissal of petitioner's counterclaim for actual and
moral damages: no reason to reverse the trial court and CA
1. Actual damages: awarded in satisfaction of, or in recompense
for, loss or injury sustained
1. To be recoverable, must be capable of proof and must
actually be proved with a reasonable degree of
certainty
2. Petitioner was unable to prove that he suffered loss
or injury
2. Prayer for moral damages: not warranted
1. Moral damages should result from the wrongful act of
a person – worries and anxieties suffered by a party
hailed to court litigation are not compensable
15. Not necessary to delve into the issue of laches
Sanchez v. Rigos
No. L-25494, June 14, 1972
C.J. Concepcion
Online digest
Facts:
1. Nicolas Sanchez and Severina Rigos executed an instrument entitled
“Option to Purchase” wherein Mrs. Rigos agreed, promised and
committed to sell to Mr. Sanchez a parcel of land for the amount of
P1,510 within two years from the date of the instrument, with the
understanding that the said option shall be deemed terminated and
elapsed if Mr. Sanchez shall fail to exercise his right to buy the
property within the stipulated period.
2. Mrs. Rigos agreed and committed to sell and Mr. Sanchez agreed and
committed to buy. But there is nothing in the contract to indicate that
her agreement, promise and undertaking is supported by a
consideration distinct from the price stipulated for the sale of the land.
3. Mr. Sanchez has made several tenders of payment in the said amount
within the period before any withdrawal from the contract has been
made by Mrs. Rigos, but were rejected nevertheless.
Issue: W/N an accepted unilateral promise to sell without consideration
distinct from the price can be withdrawn arbitrarily?
Held:
No. An accepted promise to sell is an offer to sell when accepted becomes a
contract of sale.
Rationale:
1. Since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly,
withdraw it. Pending notice of its withdrawal, his accepted promise
partakes, however, of the nature of an offer to sell which, if accepted,
results in a perfected contract of sale.
2. The option did not impose upon plaintiff the obligation to
purchase defendant's property. Annex A is not a "contract to buy and
sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given
by them to said instrument. Under the provisions thereof, the
defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff for P1,510.00, but there is nothing in
the contract to indicate that her aforementioned agreement, promise
and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.
3. This view has the advantage of avoiding a conflict between Articles
1324 – on the general principles on contracts – and 1479 – on sales –
of the Civil Code.
1. Article 1324. When the offeror has allowed the offeree a
certain period to accept, the offer may be withdrawn at any
time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration, as
something paid or promised.
2. Article 1479. A promise to buy and sell a determinate thing for
a price certain is reciprocally demandable.
4. An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promissory if the promise is
supported by a consideration distinct from the price.
5. The Court is of the considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins, Kroll and Co. case, and
that, insofar as inconsistent therewith, the view adhered to in the
Southwestern Sugar & Molasses Co. case should be deemed
abandoned or modified.
J. Antonio concurring
I fully agree with the abandonment of the view previously adhered to
in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97
Phil 249) which hold that an option to sell can still be withdrawn, even if
accepted, if the same is not supported by any consideration, and the
reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. v. Cua Hian Tek (102
Phil 948), holding that “an option implies xxx the legal obligation to keep the
offer (to sell) open for the time specified;” that it could be withdrawn before
acceptance, if there was no consideration for the option, but once the “offer to
sell” is accepted, a bilateral promise to sell and to buy ensues, and the offeree
ipso facto assumes the obligations of a purchaser. In other words, if the option
is given without a consideration, it is a mere offer to sell, which is not binding
until accepted. If, however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale. The concurrence of both acts – the offer
and the acceptance – could in such event generate a contract.
While the law permits the offerror to withdraw the offer at any time
before acceptance even before the period has expired, some writers hold the
view, that the offeror cannot exercise this right in an arbitrary or capricious
manner. This is upon the principle that an offer implies an obligation on the
part of the offeror to maintain it for such length of time as to permit the offeree
to decide whether to accept or not, and therefore cannot arbitrarily revoke the
offer without being liable for damages which the offeree may suffer. A contrary
view would remove the stability and security of business transactions.
JARDINE DAVIES INC. vs. CA and FAR EAST MILLS SUPPLY
CORPORATION (C2020)
G.R. No. 128066. June 19, 2000, BELLOSILLO, J.
FACTS:
1. PUREFOODS held a bidding for the supply and installation of the
generators was held. 

2. Only 3 bidders, namely, RESP FEMSCO, MONARK and ADVANCE
POWER submitted bid 
 proposals 

3. In a letter dated 12 December 1992 addressed to FEMSCO President
Alfonso Po, PUREFOODS confirmed the award of the contract to
FEMSCO – 

4. FEMSCO submitted the required performance bond and contractor’s all-risk
insurance policy which PUREFOODS acknowledged in a letter dated
18 December 1992. 

5. HOWEVER, in a letter dated 22 December 1992, PUREFOODS unilaterally
canceled the award 

6. 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., which was not one of the 
 bidders. 
 the latter’s contract with FEMSCO – NO
7. FEMSCO sued both PUREFOODS and JARDINE: 
 RATIO:
o PUREFOODS for reneging on its contract
o JARDINE for its unwarranted interference and inducement. • RTC
granted JARDINE’s Demurrer to Evidence
o mere suspicions and suppositions would not stand up very well in a court of
law
1. TC rendered a decision ordering PUREFOODS to indemnify FEMSCO 

2. CA affirmed the decision of the trial court and ordered JARDINE to pay
FEMSCO damages for 
 inducing PUREFOODS to violate the latter’s
contract with FEMSCO. 

3. PUREFOODS maintains its 12 December 1992 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 expressconforme. 

o Since PUREFOODS never received FEMSCO’s conforme, PUREFOODS
was very well within reason to revoke its qualified acceptance or counter-offer.
O 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 latter’s alleged contract with FEMSCO..
ISSUES:
1. WON there existed a perfected contract between PUREFOODS and
FEMSCO – YES 

2. Granting there existed a perfected contract, WON there is any showing
that JARDINE induced or 
 connived with PUREFOODS to violate


A CONTRACT IS DEFINED AS “A JURIDICAL CONVENTION
MANIFESTED IN LEGAL FORM, BY VIRTUE OF WHICH ONE OR MORE
PERSONS BIND THEMSELVES IN FAVOR OF ANOTHER OR OTHERS,
OR RECIPROCALLY, TO THE FULFILLMENT OF A PRESTATION TO
GIVE, TO DO, OR NOT TO DO.
1. 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.


2. ACCEPTANCE may be express or implied 

o Must be made known to the offeror
 o Can be withdrawn or revoked before
it is made known to the offeror
THERE WAS AN ACCEPTANCE – THE DECISION TO AWARD THE
CONTRACT HAS ALREADY BEEN MADE.
• Art. 1326 of the Civil Code applies, since PUREFOODS started the process
of entering into the contract by conducting a bidding
o The Terms and Conditions of the Bidding disseminated by PUREFOODS
constitutes the “advertisement” to bid on the project.
O The bid proposals or quotations submitted by the prospective suppliers
including respondent FEMSCO, are the offers.
O The reply of petitioner PUREFOODS, the acceptance or rejection of the
respective offers. • The 12 December 1992 letter of petitioner PUREFOODS
to FEMSCO constituted acceptance of
respondent FEMSCO’s 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.
FAILURE TO COMPLY WITH THE CONDITION MERELY GIVES THE
OTHER PARTY OPTIONS AND/OR REMEDIES TO PROTECT HIS • By the unilateral cancellation of the contract further aggravated by the
INTERESTS subsequent inking of a contract between PUREFOODS

1. 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. 

2. Distinguished between a condition imposed on the perfection of a
contract and a condition imposed merely on the performance of
an obligation (Babasa v. CA) 
 JARDINE and respondent FEMSCO, and the tender of a lower quotation by
o While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options
and/or remedies to protect his interests.
o Flagrant violation of the express provisions of the law and is contrary to fair
and just dealings
NO SPECIFIC EVIDENCE ON RECORD TO SUPPORT THAT JARDINE
CONNIVED TO DECEIVE FEMSCO
• The similarity in the design submitted to PUREFOODS by both petitioner
petitioner JARDINE are insufficient to show that petitioner JARDINE indeed
induced petitioner PUREFOODS to violate its contract with respondent
FEMSCO.

THE ACKNOWLEDGMENT BY PUREFOODS AND ITS RETURN OF

FEMSCO’S BIDDER’S BOND, WAS A CONCRETE MANIFESTATION OF BENIGNO C. GUTIERREZ vs. THE INSULAR LIFE ASSURANCE CO., LTD.,
ITS KNOWLEDGE THAT RESPONDENT FEMSCO INDEED CONSENTED
TO THE “CONDITIONAL COUNTER-OFFER G.R. No. L-9832, November 29, 1957 PARAS, C. J. (C2020)

1. An acceptance may either be express or implied, and this can be inferred FACTS:
from the contemporaneous and subsequent acts of the contracting
parties. 
 • PET filed an action against the appellee for the recovery of damages
 o
allegedly sustained as a result of RESP’s unjustifiable refusal to award to the
2. FEMSCO’s conforme would only be a mere surplusage. 
 PET the

bid for the construction of electrical wiring of the proposed building o PET
o deemed as nothing more than a pressure being exerted by petitioner recites that the appellant was the lowest bidder
PUREFOODS on
3. RESP awarded the electrical work to the second lowest bidder without any
respondent FEMSCO to lower the price even after the contract had been valid reason and despite the big difference in the bids of the appellant
perfected
and the awardee 

ABSENCE OF A PURCHASE ORDER DO NOT MAKE OR BREAK A
CONTRACT 4. PET filed motion to dismiss 


1. The tenor of the subsequent letter of petitioner PUREFOODS, i.e., “Pure

Foods Corporation is hereby canceling the award to your company of o predicated on the proposition that article 1326
 o complaint lacks the
the project,” presupposes that the contract has been perfected. 
 essential requisites called for by said provision, a valid cause of

action has not been presented • Lower court dismissed the complaint
2. There can be no cancellation if the contract was not perfected in the first
place. 
 PUREFOODS HAS ACTED WITH BAD FAITH 

ISSUE:
 WON RESP’s refusal to award to the PET the bid was unjustifiable
– NO
RATIO:
ADVERTISEMENTS FOR BIDDERS ARE SIMPLY INVITATIONS TO MAKE
PROPOSALS, AND THE ADVERTISER IS NOT BOUND TO ACCEPT THE
HIGHEST OR LOWEST BIDDER, UNLESS THE CONTRARY APPEARS
(PURSUANT TO ARTICLE 1326)
• As there is nothing in the complaint which show that in inviting proposals the
appellee held out that the contract was to be awarded to the lowest bidder, no
enforceable right on the part of the appellant has been established.
THE ALLEGED BOND WAS MERELY TO QUALIFY HIM TO SUBMIT A BID,
AND DID NOT ALTER THE CONDITIONS SET FORTH IN ARTICLE 1326
REGARDING ADVERTISEMENTS FOR BIDDERS • While PET might have
made expenditures, he should have known, like all other bidders, that he
was taking chances under specific rules of the bidding, and voluntary of course
DISPOSITION:
Wherefore, the order appealed from is hereby affirmed with costs against the
appellant.
Malbarosa v. CA
[G.R. No. 125761. April 30, 2003.]
CALLEJO, SR., J p:
Orias | Grp 5
SALVADOR P. MALBAROSA, petitioner, vs. HON. COURT OF APPEALS and
S.E.A. DEVELOPMENT CORP., respondents.
Summary: Petitioner was ordered by the trial court to return the subject car
assigned to him by respondent for his failure to agree on the letter-offer of the
respondent for an incentive compensation in the amount of P251,057.67, in
order that the said car shall be transferred to him. The trial court ruled that
there existed no perfected contract between the petitioner and the respondent
for failure of the petitioner to effectively notify the respondent of his acceptance
of the letter-offer before the respondent withdrew the same. The Court of
Appeals (CA) affirmed the decision of the trial court. Hence, this petition for
review on certiorari.
In affirming the decision of the CA, the Supreme Court ruled that the
acceptance of an offer must be made known to the offeror. Unless the
offeror knows of the acceptance, there is no meeting of the minds of the
parties, no real concurrence of offer and acceptance. The offeror may
withdraw its offer and revoke the same before acceptance thereof by the
offeree. The contract is perfected only from the time an acceptance of an
offer is made known to the offeror. The contract is not perfected if the offeror
revokes or withdraws its offer and the revocation or withdrawal of the offeror is
the first to reach the offeree. The acceptance of the offeree of the offer after
knowledge of the revocation or withdrawal of the offer is inefficacious.
Facts:
1. Malbarosa was the president and General Manager of Philtectic Corp.,
a subsidiary of private respondent SEADC. As an officer, he was
issued a car and membership in the Architectural Center.
2. Malbarosa wanted to resign and intimidated the vice chairman, Senen
Valero, and the Board of Directors of the private respondent so that
his incentive compensation is paid to him as President of Philtectic.
3. He then submitted his resignation to the VP.
4. One of the officers, Louis Da Costa, met with the petitioner and said
that he will get an approximate amount of P395k. After receipt of
the resignation, the VP sent a letter-offer to the petitioner stating the
acceptance of the resignation and advised him that he is entitled to
P251k as his incentive compensation. Also, the VP proposed the
satisfaction of his incentive by giving him the car, instead of cash.
5. Malbarosa was required to affix his signature in the letter if he agrees
to the offer. Malbarosa refused to sign the letter. He was dismayed
when he read the letter and learned that he was being offered an
incentive compensation of only P251,057.67. He told Da Costa that
he was entitled to no less than P395,000 as incentive compensation.
6. Later, the private respondent demanded that Malbarosa return the car
and turn over the membership in the Architectural Center. Malbarosa
then wrote to the counsel of the private respondent that he cannot
comply with the demand since he already accepted the offer 14
days after it was made. He enclosed a Xerox of the original with his
affixed signature as required. With his refusal, private respondent
instituted an action for recovery.
7. TC: there existed no perfected contract between petitioner and
respondent for failure of the petitioner to effectively notify the
respondent of his acceptance of the letter-offer before the respondent
withdrew the same
8. CA: petitioner had not accepted the respondent's March 14, 1990
Letter-offer before the respondent withdrew said offer on April 4, 1990.
9.
Issue: Whether or not there was a valid acceptance on the part of Malbarosa
of the letter-offer of the respondent?
Ratio:
1. Article 1319 of the New Civil Code:
1. Consent by a party is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are
to constitute the contract.
2. An offer may be reached at any time until it is accepted. An
offer that is not accepted does not give rise to a consent. The
contract does not come into existence.
3. To produce a contract, there must be acceptance of the offer
which may be express or implied but must not qualify the
terms of the offer. The acceptance must be absolute,
unconditional and without variance of any sort from the offer.
4. The acceptance of an offer must be made known to the
offeror. Unless the offeror knows of the acceptance, there is
no meeting of the minds of the parties, no real concurrence of
offer and acceptance. The offeror may withdraw its offer and
revoke the same before acceptance thereof by the offeree.
2. If an offeror prescribes the exclusive manner in which acceptance of
his offer shall be indicated by the offeree, an acceptance of the offer
in the manner prescribed will bind the offeror. On the other hand, an
attempt on the part of the offeree to accept the offer in a different
manner does not bind the offeror as the absence of the meeting of the
minds on the altered type of acceptance.
3. When the offeror has not fixed a period for the offeree to accept
the offer, and the offer is made to a person present, the
acceptance must be made immediately.
1. In this case, the respondent made its offer to the
petitioner when Da Costa handed over on March 16, 1990
to the petitioner its March 14, 1990 Letter- offer but that
the petitioner did not reject or accept the offer for the
reason that he needed time to decide whether to reject or
accept the same. The respondent, thus, had the option to
withdraw or revoke the offer, which the respondent did on
April 4, 1990.
2. Although the petitioner claims that he had affixed his
conformity to the letter-offer on March 28, 1990, the petitioner
failed to transmit the said copy to the respondent. It was only
on April 7, 1990 when the petitioner appended to his letter to
the respondent a copy of the said March 14, 1990 Letter-offer
bearing his conformity that he notified the respondent of his
acceptance to said offer. But then, the respondent, through
Philtectic Corporation, had already withdrawn its offer and had
already notified the petitioner of said withdrawal via
respondent's letter dated April 4, 1990 which was delivered to
the petitioner on the same day.
3. Even if it is assumed that the petitioner was given a
reasonable period to accept or reject the offer of the
respondent, the evidence on record shows that from March
16, 1990 to April 3, 1990, the petitioner had more than two
weeks which was more than sufficient for the petitioner to
accept the offer of the respondent.
4. Implicit in the authority given to Philtectic Corporation to demand
for and recover from the petitioner the subject car and to institute
the appropriate action against him to recover possession of the
car is the authority to withdraw the respondent's March 14, 1990
Letter-offer.
1. It cannot be argued that respondent authorized Philtectic
Corporation to demand and sue for the recovery of the car and
yet did not authorize it to withdraw its March 14, 1990 Letter-
offer to the petitioner.
2. When Senen Valero testified, he stated that the April 4, 1990
letter of Philtectic Corporation to the petitioner was upon his
instruction and conformably with the aforesaid resolution of
the Board of Directors of the respondent.
(additional cases)
(Gabriel v. monte de Piedad)
(PNB v. CA)
DKC Holdings v. CA
G.R. No. 118248. April 5, 2000
Online Digest – de jesus
On March 16, 1998, petitioner DKC Holdings Corporation (DKC) entered into
a Contract of Lease with Option to Buy with Encarnacion Bartolome, decedent
herein, whereby petitioner was given the option to lease or lease with purchase
the subject land.
Encarnacion died. Thereafter, petitioner coursed its payment to private
respondent Victor Bartolome, being the sole heir of Encarnacion. Victor,
however, refused to accept these payments. On March 14, 1990, petitioner
served upon Victor, via registered mail, notice that it was exercising its option
to lease the property, tendering the amount of P15,000.00 as rent. Again,
Victor refused to accept the tendered rentalfee and to surrender possession of
the property to petitioner. On April 23, 1990, petitioner filed a complaint for
specific performance and damages against Victor and the Register of Deeds
ISSUE: Whether or not the rights under a Contact of Lease with Option to Buy 3. They have one daughter, Stephanie, born on 21 September 1995.
were transmissible. 4. In June 1999, respondent sought and obtained from the Circuit Court, 19th
Judicial Circuit, Lake County, Illinois (Illinois court) a divorce decree
YES. The general rule, therefore, is that heirs are bound by contracts entered against petitioner.
into by their predecessors-in-interest except when the rights 5. Illinois court dissolved the marriage of petitioner and respondent, awarded
and obligations arising therefrom are not transmissible by (1) their nature, to respondent sole custody of Stephanie and retained jurisdiction over the
(2) stipulation or (3) provision of law. The Court held that there is neither case for enforcement purposes.
contractual stipulation nor legal provision making the rights 6. On 28 January 2002, petitioner and respondent executed in Manila a
and obligations under the lease contract intransmissible. More importantly, the contract for the joint custody of Stephanie.
nature of the rights and obligations therein are, by their nature, transmissible. 7. The parties chose Philippine courts as exclusive forum to adjudicate
disputes arising from the Agreement.
8. Respondent undertook to obtain from the Illinois court an order
In the case at bar, the subject matter of the contract is a lease, which is a
"relinquishing" jurisdiction to Philippine courts.
property right. The death of a party does not excuse nonperformance of a
contract which involves a property right, and the rights 9. In 2004, petitioner sued respondent in the Regional Trial Court of Makati
and obligations thereunder pass to the personal representatives of the City, Branch 60 (trial court) to enforce the contract.
10. Petitioner alleged that in violation of the Agreement, respondent exercised
deceased. Similarly, nonperformance is not excused by the death of the party
sole custody over Stephanie.
when the other party has a property interest in the subject matter of the
11. Respondent sought the dismissal of the complaint for, among others, lack
contract.
of jurisdiction because of the Illinois court’s retention of jurisdiction to
enforce the divorce decree.
Therefore, Victor is bound by the subject Contract of Lease with Option to Buy. 12. RTC - sustained respondent’s motion and dismissed the case for lack of
jurisdiction.
13. Petitioner sought reconsideration, raising the new argument that the
divorce decree obtained by respondent is void. Thus, the divorce decree
Dacasin v Dacasin is no bar to the trial court’s exercise of jurisdiction over the case. - DENIED
G.R. No. 168785 ISSUE: Whether or not the trial court can enforce the
February 5, 2010 contract/agreement? NO
Ponente: J. Carpio RULING:
Belenzo-Group 4 1. The trial court has jurisdiction to entertain petitioner’s suit but not to
Petitioner: HERALD BLACK DACASIN, enforce the Agreement which is void. However, factual and equity
Respondent: SHARON DEL MUNDO DACASIN, considerations militate against the dismissal of petitioner’s suit
and call for the remand of the case to settle the question of
Topic: B. Content and Subject Matter -> 2. Limitation on Stipulation -> a. Law Stephanie’s custody.
[Page 6 of Sir’s Book] 2. The trial court cannot enforce the Agreement which is contrary to law.
3. In this jurisdiction, parties to a contract are free to stipulate the terms
Relevant Provision: of agreement subject to the minimum ban on stipulations contrary
Art. 1306. The contracting parties may establish such stipulations, clauses, to law, morals, good customs, public order, or public policy.
terms and conditions as they may deem convenient, provided they are not 4. Otherwise, the contract is denied legal existence, deemed "inexistent
contrary to law, morals, good customs, public order, or public policy. (1255a) and void from the beginning."
5. For lack of relevant stipulation in the Agreement, these and other
FACTS: ancillary Philippine substantive law serve as default parameters to
1. Review of a dismissal of a suit to enforce a post-foreign divorce child test the validity of the Agreement’s joint child custody stipulations.
custody agreement for lack of jurisdiction. 6. At the time the parties executed the Agreement on 28 January 2002,
2. Petitioner Herald Dacasin (petitioner), American, and respondent Sharon two facts are undisputed:
Del Mundo Dacasin (respondent), Filipino, were married in Manila in April 1. (1) Stephanie was under seven years old (having been born
1994. on 21 September 1995); and
 2. (2) petitioner and respondent were no longer married under
the laws of the United States because of the divorce decree.
7. The relevant Philippine law on child custody for spouses separated in
fact or in law (under the second paragraph of Article 213 of the
Family Code) is also undisputed: "no child under seven years of
age shall be separated from the mother x x x."
1. This statutory awarding of sole parental custody to the mother
is mandatory, grounded on sound policy consideration,
subject only to a narrow exception not alleged to obtain here.
8. Clearly then, the Agreement’s object to establish a post-divorce joint
custody regime between respondent and petitioner over their child
under seven years old contravenes Philippine law.
G.R. No. L-5671. August 24, 1910.
Benito delos Reyes, plaintiff-appellant.
vs.
Veronica Alojado, defendant-appellee.
En Banc Case
FACTS OF THE CASE:
On or about Janaury 22, 1905, Veronica Alojado obtained a
loan from Benito delos Reyes the sum of ₱67.60 for the purpose of
paying her debt from Olympia Zaballa. It was agreed that Alojado
should remain as a servant in the house of delos Reyes to serve
without remuneration until such time that she can find someone who
can loan the said amount, freeing her from her obligation to delos
Reyes but repeating/incurring the same obligation.
On March 12, 1906, Alojado left without paying her debt and
despite demands, failed to pay her loan compelling delos Reyes to file
a suit at the Court of Justice of the Peace of Sta. Rosa, Laguna on
March 15, 1906 to recover the sum or to compel her to return to his
service. On April 14, 1906, the judgment was rendered by the court
against Alojado for her to pay the sum to delos Reyes and if insolvent,
fulfill her agreement with costs assessed against her.
Defendant filed an appeal with the Court of First Instance, the
plaintiff on May 4, 1906 filed a Motion to Disallow the Appeals with
cost against her alleging that it was filed out of time. Delos Reyes also
averred that Alojado also obtained several small amounts from him
amounting to the total amount of ₱11.97 that remained unpaid and
asked the court for judgment to comply with the contract and to pay
him the sum of ₱79.57 and that until paid, Alojado should remain
gratuitously in the service of his household plus the cost of the trial.
Alojado answere stressing that she left because delos Reyes
did not pay her for the services she has rendered and that the items
she purchased amounting to ₱11.97 are still in the possession of delos
Reyes because he refuses to deliver them.
The Court of First Instance absolved Alojado computing the
wages due her to ₱82 less her indebtedness. The difference shall be
paid by delos Reyes to Alojado in the amount of ₱2.43, hence, delos
Reyes filed before the Supreme Court an appeal through bill of
exceptions, alleging that the CFI’s judgment was manifestly contrary
to the weight of evidence.
ISSUE:
1. Whether or not the Court of First Instance erred in ruling that the
condition is contrary to law and morality under Article 1255 (Article
1306, NCC) in relation to the provisions on hiring domestic servies
under Article 1583, 1584 and 1585 of the Civil Code.
RULING:
No. The duty to pay the said sum as well as that of ₱11.97 delivered
to the defendant in small amounts during the time that she was in the
plaintiff’s house, is unquestionable, inasmuch as it is a positive debt
demandable of the defendant by her creditor. (Arts. 1754, 1170 Civil
Code). However, the reason alleged by the plaintiff as a basis for the
loan is untenable, to wit, that the defendant was obliged to render
service in his house as a servant without remuneration whatever and
to remain therein so long as she had not paid her debt, inasmuch as
this condition is contrary to law and morality. (Art. 1255, Civil Code).
Domestic services are always to be remunerated, and no
agreement may subsist is law in which it is stipulated that any
domestic service shall be absolutely gratuitous, unless it be admitted
htat slavery may be established in this country through a covenant
entered into between the interested parties.
Articles 1583, 1584 and 1585 of the Civil Code prescribe rules
governing the hiring of domestic servants, the conditions of such hire,
 the term during which the service may be rendered and the wages that
accrue to the servant, also the duties of the latter and the master.
Article 1306 (1255) of the Civil Code reads: The contracting parties
may establish such stipulations, clauses, terms and conditions
as they may deem convenient, provided they are not contrary to
law, moral, good customs, public order, or public policy.
(Florentino v. Encarnacion)
Maritime v Reparations Commission or Reparation Mission
G.R. No. L-29203 July 26, 1971
FERNANDO, J.:
Orias | Grp 5
Facts:
1. Plaintiff alleged that shipments of reparations goods were loaded in three
of its vessels consigned to defendant, with corresponding freight charges
amounting to P228,250.58.
2. It also alleged that said vessels arrived in Manila and discharged all such
shipment of reparations goods, which were duly delivered to and received
by defendant as consignee in good order and condition, but defendant
failed and refused to pay, notwithstanding repeated demands, the total
amount of the freight charge, above-mentioned.
3. There was a claim for attorney's fee in the amount of P20,000.00, plaintiff,
according to the complaint, being compelled to engage counsel.
4. The prayer was for a judgment against defendant in favor of plaintiff in the
aforesaid sum of P228,250.58 as freight charges plus 6% interest thereon
from the date of the filing the complaint until fully paid, and the sum of
P20,000.0 by way of attorney's fees.
5. Defendant alleges that Section 11 of the Reparations Act show that it was
not liable at all for the freight charges, a matter which, according to
defendant, was fully known to plaintiff as it had in several instances
collected, freight charges from the end-users concerned and not from the
agency.
6. TC: dismissed the complaint
Issue: W/N the defendant was liable to pay for the freight charges. NO.
Ratio:
Principle: a statute should be considered as entering into and forming
part of a contract
1. It is to be recognized that a large degree of autonomy is accorded
contracting parties.
2. According to the Civil Code, 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." The law thus sets limits. It is a fundamental requirement that the
contract entered into must be in accordance with, and not repugnant to,
an applicable statute.
3. It is in that sense that reliance by plaintiff-appellant on the force and effect
to be given the usual contracts between shipper and carriers, while finding
support in the applicable provisions both of the Civil Code and the Code
of Commerce, is far from persuasive. As was pointed out in the equally
forceful brief of defendant-appellee, to so view the matter is to ignore what
has been explicitly set forth in Section 11 of the Reparations Act which is
controlling.
MERCEDES CALIMLIM-CANULLAS, petitioner vs. HON. WILLELMO
FORTUN, Judge, Court of First instance of Pangasinan, Branch I, and
CORAZON DAGUINES, respondents.
G.R. No. L-57499 || June 22, 1984
MELENCIO-HERRERA, J.
Group 6
What Sir Casis wrote in his book: A contract of sale was declared void by
the Court for being contrary to morals and public policy. The sale was made
by the husband in favor of a concubine after he had abandoned his family and
left the conjugal home where his wife and children lived and from whence they
derived their support. The Court held that the sale was subversive of the
stability of the family, a basic social institution which public policy cherishes
and protects.
FACTS:
1. Petitioner MERCEDES Calimlim-Canullas and FERNANDO Canullas
were married on December 19, 1962.
2. They begot five children.
3. They lived in a small house on the residential land in question with an area
of approximately 891 square meters, located at Bacabac, Bugallon,
Pangasinan.
4. After FERNANDO's father died in 1965, FERNANDO inherited the land.
5. In 1978, FERNANDO abandoned his family and was living with private
respondent Corazon DAGUINES.
6. During the pendency of this appeal, they were convicted of concubinage
in a judgment rendered on October 27, 1981 by the then Court of First
Instance of Pangasinan, Branch II, which judgment has become final.
7. On April 15, 1980, FERNANDO sold the subject property with the house
thereon to DAGUINES for the sum of P2,000.00.
8. Unable to take possession of the lot and house, DAGUINES initiated a
complaint on June 19, 1980 for quieting of title and damages against
MERCEDES.
9. The latter resisted and claimed that the house in dispute where she and
her children were residing, including the coconut trees on the land, were
built and planted with conjugal funds and through her industry; that the
sale of the land together with the house and improvements to DAGUINES
was null and void because they are conjugal properties and she had not
given her consent to the sale
ISSUE: W/N the sale of the lot together with the house and improvements
thereon was valid under the circumstances surrounding the transaction
HELD:
1. The contract of sale was null and void for being contrary to morals and
public policy.
2. The sale was made by a husband in favor of a concubine after he had
abandoned his family and left the conjugal home where his wife and
children lived and from whence they derived their support. That sale
was subversive of the stability of the family, a basic social institution
which public policy cherishes and protects.
3. Article 1409 of the Civil Code states inter alia that: contracts whose cause,
object, or purpose is contrary to law, morals, good customs, public order,
or public policy are void and inexistent from the very beginning.
4. Article 1352 also provides that: "Contracts without cause, or with unlawful
cause, produce no effect whatsoever. The cause is unlawful if it is contrary
to law, morals, good customs, public order, or public policy."
5. Additionally, the law emphatically prohibits the spouses from selling
property to each other subject to certain exceptions
1. The prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those who
incurred guilt would turn out to be better than those in legal union."
2. Those provisions are dictated by public interest and their criterion
must be imposed upon the wig of the parties.
3. Matabuena vs. Cervantes: [This is] because of fear of undue
influence and improper pressure upon the donor, a prejudice
deeply rooted in our ancient law...then there is every reason
to apply the same prohibitive policy to persons living together
as husband and wife without benefit of nuptials.
GF Equity v. Valenzona
G.R. No. 156841 | June 30, 2005 | Carpio-Morales, J.
Maog | Group 6
PETITIONERS-APPELLANTS: GF Equity, Inc.
RESPONDENTS-APPELLEES: Arturo Valenzona.
TOPIC: C. Binding Effect | Principle of Mutuality
TOPIC IN DISCUSSION (Book)
“Not all contracts though which vest to one party their determination of validity
or compliance or the right to terminate the same are void for being violative of
the mutuality principle. Jurisprudence is replete with instances of cases where
this Court upheld the legality of contracts which left their fulfillment or
implementation to the will of either of the parties. In these cases, however,
there was a finding of the presence of essential equality of the parties to the
contracts, thus preventing the perpetration of injustice on the weaker party.”
The Court held that this condition clearly transgresses the principle of mutuality
of contracts. It leaves the determination of whether respondent failed to exhibit
sufficient skill or competitive ability to coach solely on the opinion of the
petitioner.
RATIO
CA’s decision is SET ASIDE. Assailed provision is NULL and VOID. Petitioner
to pay damages.
Last sentence of paragraph 3 violates the principle of mutuality of
contracts as it gives GF Equity unbridled prerogative to pre-terminate the
contract, no matter the basis of its opinion. This would open doors to
arbitrary and illegal dismissals. Thus, the assailed stipulation is null and
void.
1. Mutuality is one of the characteristics of a contract. Its validity or
performance or compliance cannot be left to the will of only one of the
parties.
1. Ultimate purpose is to render void a contract containing a
condition which makes its fulfillment or pre-termination
dependent exclusively upon the uncontrolled will of one of the
contracting parties
2. Not all contracts which vest to one party their determination of validity
or compliance or right to terminate the same are void for violating the
mutuality principle. In these cases, however, there was a finding of the
 presence of essential equality of the parties to the contracts, thus
preventing the perpetration of injustice on the weaker party.
3. Assailed condition clearly transgresses the principle of mutuality
of contracts
1. Leaves determination of whether Valenzona failed to
exhibit sufficient skill or competitive ability to coach
Alaska team solely to the opinion of GF Equity.
1. Petitioner given unbridled prerogative to pre-
terminate the contract, irrespective of the
soundness, fairness, or reasonableness, or even
lack of basis of its opinion.
4. Pre-termination must have legal basis if it is to be declared justified.
1. GF Equity failed to advance any ground to justify this. They
simply invoked the provision, which is null and void.
5. GF Equity failed to consider the abuse of rights principle enshrined in
Art. 19 of the Civil Code.
1. Pre-termination anchored on an illegal ground; GF Equity
failed to exercise in a legitimate manner its right to pre-
terminate the contract. Thus, Valenzona is entitled to
damages under Art. 20 of the CC.
6. It is impermissible to abuse our rights to prejudice others.
1. De Guzman v. NLRC: “xxx. It cannot be said that a person
exercises a right when he unnecessarily prejudices another or
offends morals or good customs. xxx”.
2. Globe Mackay Cable and Radio Corporation v. Court of
Appeals: Even if petitioners may have had the right to dismiss
respondent from work, the abusive manner in which it was
exercised amounted to a legal wrong.
1. “When a right is exercised in a manner which does
not conform with the norms enshrined in Article 19
and results in damage to another, a legal wrong is
thereby committed for which the wrongdoer must be
held responsible”
7. GF Equity’s defense of laches fails.
1. Laches applies in equity, whereas prescription applies at law.
Our courts are basically courts of law, not courts of equity.
Laches cannot thus be invoked to evade the enforcement of
an existing legal right. Equity, which has been aptly described
as a justice outside legality, is applied only in the absence of,
and never against, statutory law.
2. Respondent’s filing of the case within 6 years was well within
the prescriptive period (10 years).
8. Award of moral damages and exemplary damages must be set aside.
ISSUE
W/N the last sentence of paragraph 3 is violative of the principle of mutuality
of contracts: YES
MATERIAL FACTS
1. GF Equity, represented by its Chief Financial Officer W. Steven Uytengsu,
hired Valenzona as Head Coach of the Alaska basketball team in the
Philippine Basketball Association (PBA) under a Contract of Employment.
2. Duties of Valenzona as head coach described in the contract:
1. Coaching all games, attending every event conducted in
association with the All Star Game; complying with requirements
of CORPORATION respecting conduct of its team and players,
implementing rules established by CORPORATION; reporting in
good physical condition, giving his best services and loyalty, be
neatly and fully attired, not doing anything detrimental to the best
interests of the CORPORATION; endorse CORPORATION's
products in commercial advertising, promotion, etc.
3. Even before the conclusion of the contract, respondent had already served
under a verbal contract coaching Hills Brothers in the 3 rd PBA Conference
of 1987, where the team was runner-up.
4. Employment period agreed upon was for two years commencing January
1, 1988 and ending December 31, 1989, but the last sentence of
paragraph 3 of the contract said:
1. 3. x x x If at any time during the contract, the COACH, in the sole
opinion of the CORPORATION, fails to exhibit sufficient skill
or competitive ability to coach the team, the CORPORATION
may terminate this contract.
5. Valenzona’s lawyer pointed out the one-sidedness of this condition.
Nevertheless, respondent still acceded to the terms of the contract,
trusting Uytengsu, who recommended him to the management of GF
Equity.
6. As Alaska’s head coach, the team placed third in the Open and All-Filipino
PBA Conferences in 1988.
7. However, on Sept. 26, 1988, by letter, petitioner advised Valenzona of the
termination of his services.
8. Close to six years after termination of services, Valenzona’s counsel
demanded from petitioner payment of compensation arising from arbitrary
and unilateral termination of his employment. Petitioner refused the claim.
9. Respondent filed before the RTC Manila a complaint against petitioner for
breach of contract with damages.
1. Challenged condition in paragraph 3 as lacking in the element of
mutuality of contract, a transgression of Article 1308 of the New
Civil Code; this did not warrant his unjustified and arbitrary
dismissal.
2. GF Equity: merely exercised its right under the contract to pre-
terminate his employment due to incompetence
10. TC: Upheld validity of assailed provision; Valenzona entered into it fully
aware of the bad bargain.
11. CA: reversed TC’s decision.
1. Questioned provision merely confers upon petitioner the right to
fire its coach upon a finding of inefficiency, a valid reason within
the ambit of its management prerogatives (subject to limitations
imposed by law), and the right granted in the contract cannot be
said to be immoral, or contrary to public policy. However, despite
evidence of mutuality, petitioner abused the right by arbitrarily
terminating Valenzona’s employment. This resulted to bad faith.
12. Hence, this petition.
1. GF Equity: CA committed a non-sequitur when it agreed with
the findings of fact of the TC but reached an opposite
conclusion; freedom to enter into contracts is protected by
law, and courts will not interfere unless contrary to law,
morals, good customs, or public policy; no bad faith; laches
on the part of Valenzona
New Sampaguita Builders Construction v PNB
GR 148753 | July 30, 2004
Supreme Court | Panganiban, J.
Group 6, Chua
PETITIONERS:
RESPONDENTS:
TOPIC:
C. Binding Effect
Principle of Mutuality
SUMMARY:
NSBCI obtained loans from PNB, however, there is a clause in the
contract that states that PNB can adjust the interest rate (even increase it)
without prior notice to the client. After restructuring the loan, NSBCI was
required to pay at a higher interest rate and was not given the opportunity to
assent. PNB did not supply interest rate to be charged on medium term loans
- legal rate of 12% per annum on loans will be used. Extrajudicial Foreclosure
Valid, But Deficiency Claims Excessive
WHY THE COURT SAID WHAT IT SAID
RATIO:
Following the Truth in Lending Act
Only 19.5 and 21.5% stipulated in the promissory notes may be imposed
by respondent
After 730 days, the portions remaining unpaid are automatically
converted into medium-term loans at the legal rate of 12 percent. In all
instances, the simple method of interest computation is followed. Payments
made by petitioners are applied and pro-rated according to basic legal
principles. Charges on penalty and insurance are eliminated, and 1 percent
attorneys fees imposed upon the total unpaid balance of the principal and
interest as of the date of public auction.
Courts have the authority to strike down or to modify provisions in promissory
notes that grant the lenders unrestrained power to increase interest rates,
penalties and other charges at the latters sole discretion and without giving
prior notice to and securing the consent of the borrowers. This unilateral
authority is anathema to the mutuality of contracts and enable lenders to
take undue advantage of borrowers. Although the Usury Law has been
effectively repealed, courts may still reduce iniquitous or unconscionable rates
charged for the use of money. Furthermore, excessive interests, penalties and
other charges not revealed in disclosure statements issued by banks, even if
stipulated in the promissory notes, cannot be given effect under the Truth in
Lending Act.
ISSUE:
W/N the loan accounts are bloated.
YES.
W/N the extrajudicial foreclosure and subsequent claim for deficiency
are valid and proper.
Foreclosure: YES
Claim for Deficiency: not valid and improper → excessive
NSBCI secured a loan for P8M loan for several projects, with 3 parcels of
residential land as mortgage. Also signed for a Credit Agreement.
Bloated Loan Accounts
> NSBCI loan accounts appear to be bloated with some iniquitous
imposition of interests, penalties and other charges and attorneys fees
Promissory notes: 19.5 to 21.5 percent
No interest shall be due unless expressly stipulated in writing
Credit Agreements
1st Credit Agreement: not signed by branch manager; objected by petitioners;
no attached annex that contained the general conditions
 → interest rate that was set at 3% more than the prime rate has no bearing
on the loan
2nd Credit Agreement: no provision on increase or decrease; no 7 page annex
on general conditions; 12 page general conditions had to probative value
→ even if document is admitted by petitioners, credit line expired one year
before the implementation of the agreement
3rd Credit Agreement:
21.5% rate agreed upon applies
Debt Relief Package Not Availed Of
Extrajudicial Foreclosure Valid, But Deficiency Claims Excessive
→ the auction price of the foreclosed property is enough, there
is no need to have excessive claims and charges
Ravago Equipment v CA
G.R. No. 12133 April 10, 1997 Padilla, J.
PET Ravago entered into a Lease Contract with private respondent
Alcolex wherein the former leased to the latter 1 unit of Caterpillar Diesel
Generator. The terms and conditions of the Rental Contract are:
o Alcolex shall pay P120, 000 per month
 o The above rental price shall be
for “use, non-use, or standby” of the unit or “for 200 operating hours within
the period
whichever comes first
 o Operation in excess of 200 hours shall be charged
P600 per hour
 o In cases where the generator is to be used on a holiday or
a Sunday, a minimum of 8 hours per day shall be charged
13. The total rental/ charges due from Alcolex amounted to
P1,172,406.5 of which only P525, 437.5 has been paid. PET prays that
Alcolex be ordered to pay the balance plus damages. 

14. Alcolex for its part: 
 account against Alcolex was not presented in court. Moreover, said
o Denied the genuineness and due execution of the lease contact. It averred
that Mr. Chua who
signed the contract for Alcolex was not authorized by the corporation to
represent it since he was merely a messenger who was dismissed even
before he could complete his probationary employment status.
o Admitted paying P527, 437.50 but argued that the same represented full
and total payment for the entire duration of their use of the leased generator.
ISSUE/HELD:
WoN lease contract is binding against Alcolex- YES
Ratio:
Contract is enforceable against Alcolex
Article 1317, Civil Code
No one may contract in the name of another without being authorized by the
latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it
has been executed, before it is revoked by the other contracting party.
Even assuming that Chua had no authority to sign for Alcolex, the contract
was impliedly ratified
when the generator subject of the contract was used by Alcolex for its
operations.
While the subject contract of lease is binding on Alcolex, PET has not
sufficiently proved that overtime use of the generator.
15. The person who prepared the statement of
statement of account does no per se prove actual overtime use by
Alcolex of the generator. 

16. There is a dearth of evidence to show whether
the overtime charges reflected in the statement of 


account were actually incurred by Alcolex.