Tarlac State University

College of business and Accountancy

Bachelor of Science in Accountancy

Written report on Obligations and Contract from Article no. 1324 to Article no. 1329

Submitted By:

Mark Angelo M. Hulipas

BSA – 1A

RFBT-1

Submitted To:

Atty. Noel Adion

April 2020
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may be withdrawn at any time before acceptance by communicating such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 a consideration, something

paid or promised.

-Meaning, when the offeror received the money from the offeree from which the offeror

has an obligation to do whatever is on the contract within the option period then the offeror,

after the acceptance, withdrawal is not possible because there is no offer to withdraw.

But even before acceptance, the offeror may not withdraw the offer if the option is covered by a

consideration as when the offeree promised to pay offeror for giving him a period of time . there

is here an option contract. After the given period, in the absence of acceptance, the offer

becomes ineffective. But in article 1479, the general rule regarding offer and acceptance is that,

when the offeror gives to the offeree, a certain period to accept, the offer may be withdrawn at

any time before acceptance except when the option is founded upon consideration.

Real life Scenario:

Southwestern Sugar and molasses Co. – Plaintiff-appellee vs. Atlantic Gulf and pacific

Company- defendant-appellant

FACTS:

a.) March 24, 1953, The appellant granted an option to plaintiff to buy its barge No. 10 for

P30,000 within 90 days.

b.) May 11,1953, appellee wrote to Atlantic gulf to be notified as soon as the barge was

available.

c.) May 12, 1953, Atlantic gulf replied stating that “Offer of option” is to be a cash transaction

and to be effect at the lighter is available. June 25, 1953- reinstating the unavailability of the

barge, it further advise the Southern Company, since there is still further work for it, the barge

could not be turned over to the latter company.

d.) June 27, 1953, Atlantic Gulf withdraw its “after option” they set up as a defense to sell made

by it to Southwestern is null and void because it is not supported bay any consideration.

e.) After due trial, lower court judgment granting plaintiff for specific performance. It for order

the defendant to pay damages in an amount equivalent to 6 percent-um on the sum of P30,000

and P600 as atty’s fees, plus cost of action.

ISSUE:

Whether or not that the defendant -appellant can be compelled upon their “offer to option” to

grant their acceptance from the offeror.

HELD:

No, it is true that under article 1324 of the NCC , the general rule regarding offer and

acceptance is that, when the offeror gives to the offeree, a certain period to accept, the offer may

be withdrawn at any time before acceptance except when the option is founded upon

consideration, but this general rule must be interpreted , modified by the provision of art.

1479 above referred to which applies to a promise to buy and sell specifically. As already stated ,

this rule require that the promise to sell be valid must be supported by consideration distinct from

price. The decision appealed from is reversed without pronouncement as to cost.

Article 1325:

Unless it appears otherwise, business advertisements of things for sale are not

definite offers, but mere invitations to make an offer.

- Advertisements of things for sale may or may not constitute definite offer. They are

merely invitations to the reader to make an offer or only as proposals. However , if the

advertisement is complete in all the particulars necessary in a contract it may amount to a

definite offer or it is a definite offer when the object is determinate. In some cases the

advertisements are just invitations for people to make offers. If the offers are made, the same

may or may not be accepted by the advertiser.

Example:

For sale 400 square meter lot at no. 111 Road 5 Atdramm Village Brgy. Calios, Sta.

Cruz Laguna for 600,000k, for inquiries call 0917-111-2222

If the advertisement does not contain all the important data for the future contract, it is not a

definite offer and just a mere invitation to make an offer.

Example:

For sale 400 square meter lot Brgy Calios Sta.cruz Laguna for 600,000k.

Clearly, the advertisements are just invitations for people to make offers. If the offers are made,

the same may or may not be accepted by the advertiser being mere invitations.

Question:
 When can be a business advertisement of thing is a definite offer?

Answer:

A business advertisement of thing is a definite offer when the advertisement is complete

in all particulars in a contract or when the object is determinate.

Article 1326:

Advertisements for bidders are simply invitations to make proposals, and the

advertiser is not bound to accept the highest or lowest bidder, unless the contrary

appears.

Effect of Bidding

In an advertisement, it can be concluded that the best bid (highest or lowest) give rise to a

binding contract. In this case, each bid implies perfection of contract subject to the condition of

making better bid. If this condition is not especially provided, each bid is merely an offer, the

advertiser is free to reject the bid. Where in an advertisement calling for public auction indicated

that the right to reject all kinds of bid is reserved to the party offering the property. All parties

that will take part at the said bidding must submit to the terms of the auction and that if rejected,

party who called for the bids is not compelled to accept the bid or execute a deed of sale in favor

of the bidder.
Real life Scenario:

TIBURCIO LEOQUINCO, plaintiff-appellant,

vs.

THE POSTAL SAVINGS BANK, ET AL., defendants-appellees.

JOHNSON, J.:

This action was commenced in the Court of First Instance of the City of Manila on the

15th day of May, 1924, against the Postal Savings Bank (El Banco Postal de Ahorros) and its

board of directors composed of Cipriano Unson, Miguel Unson, Antonio Villa-Real, Jose

Topacio, Ben F. Wright, and Jose Alba.

FACTS:

Sometime in March 1924, a bidding for the sale of parcel of land situated in Navotas for

the amount of P27,000.00 was conducted by Postal Savings Bank in which the herein plaintiff

emerged as the highest bidder. That in Resolution No.31, it was expressly stated that the right to

reject any and all bid is reserved to the Board of Directors of the said bank.

On May 9,1924, the plaintiff made a letter advising the defendants regarding his intent to tender

his payment as soon as the deed of sale is executed and delivered by the defendants in his favor.

Unfortunately, the defendants refused to comply with the same which caused the plaintiff to

contend that said omission by the defendants caused him damage amounting to P25,000.00.

Hence, this appealed cause of action.

ISSUE:

Whether or not the appellant’s contention has merit to warrant favorable cause of action

against the defendants

HELD:

No. There is absolutely no merit in this appeal. Appellant set forth and admitted in his

pleadings that in the resolution adopted by the board of directors authorizing the sale at public

auction of the land, as well as in the notice announcing the auction, the appellees had expressly

reserved to themselves the right to reject any and all bids. By taking part in the auction and

offering his bid, the appellant voluntarily submitted to the terms and conditions of the auction

sale, announced in the notice, and clearly acknowledged the right so reserved to the appellees.

The appellees, making use of that right, rejected his offer. Clearly, the appellant has no ground of

action to compel them to execute a deed of sale of the land in his favor, nor to compel them to

accept his bid or offer.

QUESTION:

What is the effect of express stipulation of advertiser’s right to reject any or all bids?

ANSWER:

During rejection, he cannot be compelled to execute or deliver the deed of sale of the

property in favor of the appealing bidder.

Art. 1327:

The following cannot give consent to a contract:

(1) Unemancipated minors;

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

(1263a)

Persons Who Cannot Give Consent To A contract.

1. Unemancipated Minors– minors below 18 years of age. There are no more

unemancipated minors above 18 since the legal age was reduced from 21 to 18.

Emancipation by marriage and parental concession had already been eliminated. Children

below 18 by themselves being minors cannot enter into valid contracts. However, If

misrepresented his age on the contract by stating of his age, and other party was misled,

the contract shall be binding upon him on the basis of estoppel.

2. Insane Or Demented Persons– When a person is insane or demented, his is detached

from reality. He does not know what he is doing. He cannot act with legal effects.

Consequently, he cannot enter into valid contracts. During lucid intervals, temporary

improvement in a patient's condition after a traumatic brain injury, as may happen in rare

cases, they may enter into valid contracts because at this moment, they are sane and

capable of knowing what they are doing.

3. Deaf-Mutes – Not all deaf-mutes are disqualified to give consent to contracts. Only those

who do not know how to write are disqualified.

Effects Of Contracts Entered By incapacitated Persons.

The contracts entered into by the incapacitated persons enumerated in the law are not

void. They are only voidable if only one party cannot give his consent. But if both parties are

incapacitated to give consent, the resulting contract is unenforceable.

Exceptions when minors are liable under their contracts despite their minority.

1.When the minor, in entering into a contract actively However, if there is merely silence in the

contract as to the age of the minor, the fraud is not actual but only constructive, the minor is not

bound by his signature. He is guilty only of passive misrepresentation.

2.When the contract involves the sale and delivery of necessaries to the minor, he is bound

thereby according to art. 1489.

3. When the minor, upon reaching the age of majority ratifies the contract he becomes bound

thereby.

4. When the contract is in the form of savings account in the Postal Savings Bank, provided the

minor is at least 7 years of age, the same is valid.

5. When the contract is an insurance for life, health and the accident on the minor’s life.

Examples:

Unemancipated minors

John who is a minor owns a land, being the only heir of his deceased father. Bill

purchases the land and there is a failure to transfer because John is still minor.

Insane or demented persons

 Juan who is insane in the time of entering a contract to Pedro is not valid.

Deaf-mutes

Lili who is entering to a contract with Ivy, knows how to read but can’t write due

to physical reason is valid.

Article 1328:

Contracts entered into during lucid interval are valid. Contracts agreed to in

a state of drunkenness or during a hypnotic spell are voidable.

Lucid interval is that period of time when an insane person acts with reasonable

understanding, comprehension and discernment with respect to what he is doing.

Contracts entered into a state of drunkenness may likewise be annullable.

However, the intoxication must be of such character as to perpetuate undue advantage

over the drunken person.

Lucid Interval – temporary period of sanity.

An insane person may still enter into a valid contract and even convey property provided

that his condition did not interfere with or affect his capacity to appreciate the meaning and

significance of the transaction he entered.

Drunkenness – condition of a man whose mind affected by immediate use of intoxicating drinks.
 The use of intoxicants or drugs does not necessarily mean a complete loss of

understanding, but a person, through a super abundance of alcohol drinks or the excessive use of

drugs may become mentally obscured that he is, comparable to an insane person in lack of

understanding. It has been held that drunkenness in such degree that obscured completely the

faculties and almost extinguishes the consciousness of acts, may be a ground for annulment of a

contract.

Hypnotic spell – an induced somnambulism sleepwalking or an artificial method of inducing

sleep.

Although the law mention only hypnotism as avoiding a contract, the same is true with

somnambulism. The utter want of understanding is a common element of both.

Real life scenario:

Case: Salvador Ascalon Editha Dithcing et al, Petitioners

vs

COURT OF APPEALS and LUIS E. CUAYCONG, JR., respondents.

FACTS:

PETITIONER: Salvador Ascalon

RESPONDENT: Luis Cuaycong Jr

PONENTE: Gutierrez, Jr.

Court of First Instance of Negros Occidental, declared the disputed properties as conjugal

in nature. After the death of Praxedes Ascalon on June 1, 1959, respondent Luis E. Cuaycong,
Jr., initiated the filing of Spec. Proc. No. 324 before the then Court of First Instance of Negros

Occidental. Praxedes was survived by the heirs:

That as early as 1920, the primitive owners of said hacienda (spouses Eduardo Cuaycong and

Clotilde de Leon) conveyed the same to their son Justo Cuaycong, father of Luis Cuaycong, Sr.,

for P300,000.00 of which amount only P30,000.00 was in hand paid, but the transaction was

subsequently rescinded (Exh.A); that on December l0, 1927, said Eduardo Cuaycong conveyed

by way of pacto de retro sale the same hacienda to his son Justo for P45,000.00, which right to

repurchase shall be exercised within three years; that on July 10, 1930, Justo Cuaycong acquired

the same hacienda by way of purchase (Exh. F, p. 2); that on October 23, 1931, said Justo

Cuaycong mortgaged the same haciendas to aforenamed Clotilde de Leon to secure the payment

within a period of eight years of the sum of P61,000.00.

Luis E. Cuaycong, Jr., is the son of Praxedes’ husband Luis, Sr., by another woman, hence, the

other heirs opposed the petition. Luis, Sr., was appointed as judicial administrator of the intestate

estate of his deceased wife. On May 31, 1964, Luis, Sr., died. parties could not agree on the

proper partition of the parcels of land. The oppositors (Praxedes brother, sisters, nephew and

nieces) claimed that all these parcels of land (collectively called Hacienda Bacayan) were

conjugal properties. On the other hand, the private respondent claimed that the parcels of land

are conjugal only to the extent of 20% and are individual property of Luis, Sr., as to 80%. Thus,

Luis, Jr., claimed that a certain portion of hacienda Bacayan was donated by his grandfather

Justo Cuaycong to his father, Luis, Sr., while another part thereof, was sold to Luis, Sr.

After due trial, the lower court issued an order declaring the subject parcels of land as conjugal

property of Luis D. Cuaycong and Praxedes A. Cuaycong; and the Project of Partition should be

corrected accordingly. Luis, Jr., appealed the order to the Court of Appeals. The appellate court
sustained his theory,that the owner had donated said hacienda to his son Luis, Sr by way of

onerous donation, which is mixed in nature, for it was patently sold for Pl.00, which is grossly

very much lower than its value, but burdened with an obligation on the part of the donee to pay

the accounts of the donor (Justo Cuaycong) to his creditors

ISSUE:

Whether or not the uncaptioned document for the private respondent and for the

petitioners was partly a deed of donation and partly a conveyance by onerous title?

LAWS:

Article 1328 Contracts entered into during a lucid interval are valid. Contracts agreed to

in a state of drunkenness or during a hypnotic spell are

HOLDINGS:

1. There is no doubt as to the intention of the parties to the contract when they stipulated

that the land was being sold by one to the other. Therefore, the literal meaning of the stipulation

shall control.

2. Bad faith and inadequacy of the monetary consideration do not render a conveyance

inexistent, for the assignor’s liberality may be sufficient cause for a valid contract (Article 1350,

Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid

until annulled, a contract concerning an object certain entered into with a cause and with the

consent of the contracting parties, as in the case at bar.” (Ong v. Ong, 139 SCRA 133, 137)
 Article 1329:

The incapacity declared in Article 1327 is subject to the modifications

determined by law, and is understood to be without prejudice to special

disqualifications established in the laws.

Incompetents who may be placed under judicial guardianship (under Rule 92, Section 2 of

the Revised Rules of Court):

 those suffering the penalty of civil interdiction;

 hospitalized lepers;

 Prodigals;

 deaf and dumb who are unable to read and write;

 those of unsound mind even though they have lucid intervals;

 Those who by reason of age, disease, weak mind, and other similar causes, cannot without

outside aid, take care of themselves and manage their property, becoming thereby an easy prey

for deceit and exploitation.

On the other hand, the special disqualifications mentioned in Article 1329 refer to those

explicitly disqualified by law from entering certain contracts:

 Persons enumerated in Article 1491 due to fiduciary relationship or due to public policy:

1. The guardian: his ward’s property.

2. The agent: the principal’s property.

3. Executors and administrators: property under administration.

4. Public officers: state property under their administration.

5. Justices, judges, prosecutors, clerks of court, lawyers: property attached in litigation.

 Husband and wife cannot enter into contract of donation, sale or lease with each other because

they are not allowed to donate, sell or lease properties to one another unless a separation of

property was agreed upon in the marriage settlements or when there has been a judicial

separation or property under Article 191;

 Insolvents until they are discharged;

 Non-Christian inhabitants cannot enter into contract involving real estate without the approval of

the Commission on National Integration (Public Land Act).

Real life scenario:

PAUKI, TABUACAR, ORANGAGA, and DAYANG all surnamed MADALE, plaintiffs-

appellants,

vs.

PASEYANAN BAY SA RAYA, and BUAT ALONTO, defendants-appellees.

FACTS:
 Plaintiffs inherited from their deceased father a piece of land situated in Dansalan,

Province of Lanao. The plaintiffs brought the action in the Court of First Instance of Lanao to

quiet title against the defendants, claiming that the latter took possession of the said land.

By way of defense, the defendants alleged that on April 6, 1940 a deed of sale was executed by

Pauki Baylabi Madali, one of the plaintiffs, with consent of her husband, in favor of Paseyanan

Bay Sa Raya. The latter then executed a deed of sale favoring Buat Alonto.

The trial court rendered judgment dismissing plaintiffs’ complaint for the reason that being both

parties are non-Christians and the provisions under Sections 145 and 146 of the Administrative

Code of Mindanao and Sulu does not apply. The plaintiffs then appealed.

ISSUE:

WON the contract entered by both parties are void?

HELD:

Yes. Approval by the officials concerned is required in contracts involving real estate

even if BOTH parties are non-Christians, because both imposition and fraud are still possible in

this case.

QUESTION:

If a hospitalized leper or a very old man has not been placed under guardianship, may he

still enter into a binding contract?

ANSWER:

Yes, because he would still be presumed capacitated to enter into a contract (although

classified as an incompetent). If it can be shown that intelligent consent was absent, the contract

can be considered VOIDABLE.