PUREFOODS to FEMSCO constituted acceptance of respondent
1305 CONTRACTS FEMSCO’s offer as contemplated by law.
JARDINE DAVIES INC., petitioner,
vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION,
respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 128069
PURE FOODS CORPORATION, petitioner,
vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION,
respondents.
Moral Damages; Besmirched Reputation
Jardine Davies v. Court of Appeals [GR No. 128066, June 19, 2000]
FACTS:
During the height of the power crisis in 1992 which the country
experiencing, PURE FOODS CORPORATION (hereafter
PUREFOODS) decided to install two (2) 1500 KW generators in its
food processing plant in San Roque, Marikina City to remedy and
curtail further losses due to the series of power failures.
Sometime in November 1992, bidding for the supply and
installation of the generators was held. Several suppliers and
dealers were invited to attend a pre-bidding conference to
discuss the conditions, propose scheme and specifications that
would best suit the needs of PUREFOODS.
Out of the eight (8) prospective bidders, FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO) won the bid.
Thereafter, in a letter dated 12 December 1992 addressed to
FEMSCO President Alfonso Po, PUREFOODS confirmed the award
of the contract to FEMSCO.
Later, however, in a letter dated 22 December 1992, PUREFOODS
unilaterally canceled the award due to alleged "significant
factors” and re-bid of the project." Consequently, FEMSCO
protested the cancellation of the award. However, on 26 March
1993, 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. (hereafter JARDINE).
Trial ensued and on 27 June 1994 the Regional Trial Court of Pasig,
Br. 68, granted among others the award for moral damages in the
amount of P2,000,000.00 each for JARDINE and PUREFOODS,
respectively.
ISSUE:
Whether or not the award for moral damages is proper.
RULING:
The award for moral damages to a corporation whose reputation
has been besmirched is proper.
The controversy in this case lies in the consent - whether there was
an acceptance of the offer, and if so, if it was communicated,
thereby there is a perfected contract.
Article 1326 of the Civil Code, provides that "advertisements for
bidders are simply invitations to make proposals," accordingly, the
Terms and Conditions of the Bidding disseminated by petitioner
PUREFOODS constitutes the "advertisement" to bid on the project.
The bid proposals or quotations submitted by the prospective
suppliers including respondent FEMSCO, are the offer and, the
reply of petitioner PUREFOODS, the acceptance or rejection of
the respective offers. The 12 December 1992 letter of petitioner
1
Hence, by the unilateral cancellation of the contract, the
defendant (petitioner PURE FOODS) has acted with bad faith and
this was further aggravated by the subsequent inking of a
contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought that
by the expedient means of merely writing a letter would
automatically cancel or nullify the existing contract entered into
by both parties after a process of bidding. This, to the Court’s
mind, is a flagrant violation of the express provisions of the law and
is contrary to fair and just dealings to which every man is due.
In the instant case, respondent FEMSCO has sufficiently shown
that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the
project, only to be canceled later. The Court thus sustain
respondent appellate court's award of moral damages. However
the award is reduced from P2,000,000.00 to P1,000,000.00, as
moral damages are never intended to enrich the recipient.
Further, the Court finds no sufficient evidence on record to support
the allegation that JARDINE induced PUREFOODS to violate the
contract with FEMSCO and therefore the award for moral
damages is not granted.
ANG YU ASUNCION ET AL. VS. COURT OF APPEALS AND BUEN
REALTY CORP.
Topic: Sales; Contract of sale v. Contract to sell; remedies for
violation of right of first refusal
FACTS:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and
commercial spaces owned by the Unjiengs. They have been
leasing the property and possessing it since 1935 and have been
paying rentals.
In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that
the property was being sold and that Petitioners were being given
priority to acquire them (Right of First Refusal). They agreed on a
price of P5M but they had not yet agreed on the terms and
conditions. Petitioners wrote to the Unjiengs twice, asking them to
specify the terms and conditions for the sale but received no
reply. Later, the petitioners found out that the property was
already about to be sold, thus they instituted this case for Specific
Performance [of the right of first refusal].
The Trial Court dismissed the case. The trial court also held that the
Unjieng’s offer to sell was never accepted by the Petitioners for
the reason that they did not agree upon the terms and conditions
of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million
or below, plaintiffs will have the right of first refusal.
The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, in 1990, the property was sold to De Buen Realty,
Private Respondent in this case. The title to the property was
transferred into the name of De Buen and demanded that the
Petitioners vacate the premises.
Because of this, Petitioners filed a motion for execution of the CA
judgement. At first, CA directed the Sheriff to execute an order
directing the Unjiengs to issue a Deed of Sale in the Petitioner’s
favour and nullified the sale to De Buen Realty. But then, the CA
reversed itself when the Private Respondents Appealed.
ISSUES:
Whether or not the Contract of Sale is perfected by the grant of
a Right of First Refusal.
Whether or not a Right of First Refusal may be enforced in an
action for Specific Performance.
HELD:
No. A Right of First Refusal is not a Perfected Contract of Sale
under Art. 1458 or an option under Par. 2 Art 1479 or an offer under
Art. 1319. In a Right of First Refusal, only the object of the contract
is determinate. This means that no vinculum juris is created
between the seller-offeror and the buyer-offeree.
No. Since a contractual relationship does not exist between the
parties, a Right of First Refusal may not be enforced through an
action for specific performance. Its conduct is governed by the
law on human relations under Art. 19-21 of the Civil Code and not
by contract law.
Therefore, the Supreme Court held that the CA could not have
decreed at the time the execution of any deed of sale between
the Unjiengs and Petitioners.
Other Rules, Comments and Discussion:
This case is notable because it lays down the rules on options
contracts and right of first refusal as well as promises to buy and
sell. First, the Supreme Court discussed the stages of the formation
of a sales contract, these are:
Negotiation – covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is concluded (perfected).
Perfection – takes place upon the concurrence of the essential
elements thereof. In a sales contract this is governed by Art. 1458
Consummation – begins when the parties perform their respective
undertakings under the contract culminating in the
extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an
independent source of obligation, serve as a binding juridical
relation. A sales contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver and to
transfer ownership of a thing or right to another, called the buyer,
over which the latter agrees (Art 1458).
Under Art. 1458, there is no perfection of a sale under a “Contract
to Sell”. A Contract to Sell is characterized as a conditional sale
and the breach of the suspensive condition will prevent the
obligation to transfer title from acquiring obligatory force.
Promises to Buy and Sell
Unconditional mutual promise to buy and sell – As long as the
object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may
accordingly be exacted. The Right of First Refusal falls under this
classification.
Accepted unilateral promise – If it specifies the thing to be sold
and the price to be paid and when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract
is legally binding. (Par. 2 Art. 1458) Note however, that the option
is a contract separate and distinct from the contract of sale.
Once the option is exercised before it is withdrawn, a bilateral
promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.
Offers with a Period
Where a period is given to the offeree within which to accept the
offer, the following rules generally govern:
If the period is not itself founded upon or supported by a
consideration – Offeror may withdraw offer at any time before its
acceptance (or knowledge of its acceptance). However, the
2
right to withdraw must not be exercised whimsically or arbitrarily
otherwise it can give rise to damages under Art. 19 of the New
Civil Code
If period is founded on a separate consideration – This is a
perfected contract of option. Withdrawal of the offer within the
period of the option is deemed a breach of the contract of option
(not the sale). “If, in fact, the optioner-offeror withdraws the offer
before its acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for specific performance on the
proposed contract (“object” of the option) since it has failed to
reach its own stage of perfection. The optioner-offeror, however,
renders himself liable for damages for breach of the option.”
Earnest money – This is not an offer with a period. Earnest money
is distinguished from the option contract if the consideration given
will be considered as a part of the purchase price of the object of
the sale. Earnest money is evidence of a perfected contract of
sale. (Art. 1482)
Right of First Refusal
This is “an innovative juridical relation” because it is neither a
perfected contract of sale under Art. 1458 nor an option contract
under par. 2 Art 1479. The object might be made determinate, the
exercise of the right, however, is dependent on the offeror’s
eventual intention to enter into a binding juridical relation with
another but also on terms and conditions such as price. There is
no juridical tie or vinculum juris.
Breach of the right cannot justify correspondingly an issuance of
a writ of execution under a court judgement that recognizes its
existence, such as in Ang Yu Asuncion. An action for Specific
Performance is not allowed under a Right of First Refusal because
doing so would negate the indispensable element of
consensuality in the perfection of contracts.
This right is not inconsequential because it gives right to an action
for damages under Art. 19.
Other Acts that Won’t Bind
Public advertisements or solicitations – Construed as mere
invitations to make offers and/or proposals.
G.R. No. L-5671. August 24, 1910.
Benito delos Reyes, plaintiff-appellant.
vs.
Veronica Alojado, defendant-appellee.
FACTS
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.
FERRAZZINI V GSELL | 1916 | TRENT, J.
FACTS:
• Carlos Gsell is engaged in the manufacture of umbrellas,
matches and hats;
• Anselmo Ferrazzini was employed by Gsell as foreman in
the umbrella factory;
o At some point, he was discharged by Gsell so he filed this
case to recover damages for an alleged wrongful discharge;
• Gsell, for his part admitted he discharged Ferrazzini
without “written advice of six months in advance” as provided in
the contract;
o But, he says the discharge was lawful on account of
absence, unfaithfulness, and disobedience of orders;
o He also sought a counterclaim for further alleged
breach by Ferrazzini after his discharge (that he cannot enter into
employment of any enterprise in the Philippines, during his
employment and within 5 years after termination except when
given written permission; if he does, he will pay Gsell P10k; Gsell
was employed in cement industry);
• Trial court favoured Ferrazzini and declined to consider
the counterclaim, so Gsell appealed.
3
ISSUES:
1. Was the discharge lawful? Yes.
2. Is the stipulation preventing Ferrazzini to “enter into the
employment of any enterprise in the Philippine Islands, whatever,
save and except after obtaining special written permission
therefor” valid? No, against public policy.
RATIO:
1. The discharge was lawful.
a. Court looked into whether Gsell had just cause to
discharge Ferrazzini; Gsell has to prove justification for his act
because it was in contravention of the six-month clause in the
contract; if it was without just cause, it was in violation of the
contract and Ferrazzini is entitled to recover;
b. Court based the justifications on the testimonies of the
parties;
1. For Ferrazzini’s absences during working hours for the
purpose of drinking:
o Ferrazini – he said he was allowed by Gsell in the morning
ten or fifteen minutes during the hot season to absent himself to
have a drink of beer or whiskey, and the same in the afternoon
and that the manager (whose name is Bender) merely told him
not to do it in such an ostentatious manner;
o Gsell – he directed the manager to discontinue the habit
of during; Bender – he expressly told Ferrazini not to go out without
permission;
2. For his unfaithfulness:
o Ferrazzini – he admitted saying to persons at supper in
the mess hall that Gsell measured the cloth for the umbrellas, that
it is his idea that Gsell has no confidence in his employees; but he
testified that he did not remember saying that Specht, the
foreman, was not receiving sufficient salary;
o Specht and another co-worker, however, testified
positively to what he said about Specht;
c. All the foregoing shows a conduct on the part of
Ferrazzini inconsistent with the due and faithful performance of his
duties as an employee of Gsell; former is at times a foreman and
at times in charge of important departments of the factory
wherein four hundred employees work, Gsell did only had the right
to prohibit the drinking but also his duty for his own interests and
the safety of his other employees;
d. Although, in the record, Gsell terminated Ferrazzini on
account of the conversation at the mess, he, at the time of the
discharge, was authorized to take into consideration the latter’s
whole course of conduct in determining whether the contract of
employment should be terminated;
2. The stipulation is unlawful for being against public policy;
a. Public policy – the principle under which the freedom of
contract or private dealing is restricted by law for the good of the
public; intended that the principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good;
b. Case distinguished from Gsell v Koch – there the
provisions in the contract against the engaging in the
manufacturing of straw hats (by the terminated employee, being
the same business the employer is in) were held to be reasonably
necessary for the protection of the plaintiff and not oppressive;
c. Contract in undue or unreasonable restraint of trade –
unenforceable because they are repugnant to the established
public policy; illegal in the sense that the law will not enforce
them;
d. Two principal grounds why a contract in restraint of
trade is void as against public policy:
1. Injury to the public by being deprived of the restricted
party’s industry; and
2. The injury to the party himself by being precluded from
pursuing his occupation, and thus being prevented from
supporting himself and his family;
e. Contract under consideration is clearly one in undue or
unreasonable restraint of trade and therefore against public
policy:
1. It is limited to time and space but not as to trade;
2. It is not necessary for the protection of the employer;
3. It would force Ferrazzini to obtain a livelihood in case the
defendant declined to give him the written permission to work
elsewhere in the country.
Note: The test on whether a given agreement constitutes an
unlawful machination or a combination in restraint of trade:
Whether, under the particular circumstances of the case and the
nature of the particular contract involved in it, the contract is, or
is not, unreasonable.
JUDGMENT: Modified.
FERRAZINI V. GSELL, 34 PHIL 693, AUGUST 10, 1916
FACTS:
The issue started when defendant was alleged to wrongfully
discharge the plaintiff who had been employed by the
defendant for an indefinite time, admitting that he discharged
the plaintiff without written advice, however, asserting that such
discharge is lawful on account of absence and disobedience of
the plaintiff. The previous judgment was in favor of the plaintiff,
hence, the defendant now seeks an appeal. The defendant
asserts that in their contract, the petitioner cannot enter into an
employment within five years after the termination of their
agreement. However, it is discovered that the plaintiff has
contracted another employment, hence, violating their
agreement.
ISSUE: Whether or not the right of the plaintiff to enter into contract
can be restrained and such agreement is against public policy?
HELD: No. The Court ruled that it is the policy of the law that the
freedom of persons to enter into contracts shall not be lightly
interfered with, as long as it does not conflict with the morals of
the times or contravenes the interest of the society. Defining
public policy, is the law of persons the public, of social and legal
interest, that which is permanent and essential of the institutions,
cannot be left to his own will. The doctrine that a contract in
restraint of trade is void as against public policy is based on two
principal grounds: 1.) the injury to the public by being deprived of
the restricted party’s industry; and 2.) the injury to the party himself
by being precluded from pursuing his occupation, preventing him
from supporting his family and/or himself. Moreover, stressing a
rule in Gibbs v. CGCB, the court held that public welfare is first
considered. Therefore, the contract between the plaintiff and
defendant is clearly one that is against public policy because it
deprives the former in obtaining a livelihood.
LEAL V. IAC
G.R. NO. L-65425
NOVEMBER 5, 1987
FACTS:
On March 21, 1941, a document entitled “Compraventa”, written
entirely in Spanish and involving three parcels of land, was
executed by the private respondents’ predecessors-in-interest,
Vicente Santiago and his brother Luis Santiago, in favor of Cirilo
Leal, the deceased father of some of the petitioners. It was stated
in the document that the lands shall not be sold to any other
person except only to the seller Vicente Santiago or to his heirs or
successors. However, between 1960 and 1965, the Leals had
already mortgaged or leased the lands to their co-petitioners.
Sometime before the agricultural year 1966-1967, Vicente
Santiago approached the petitioners and offered to repurchase
the properties. The petitioners refused.
ISSUE:
4
Is the contract stating that the lands should not be sold to any
other party except the seller thereof valid?
RULING:
No. A prohibition to alienate would be a subversion of public
policy, which does not favor unwarranted restrictions on the right
to ownership. The contract perpetually prohibits the sale of the
lands to other parties and is a restriction to ownership, which is
contrary to public policy. Even according to Article 1508 of the
Civil Code of Spain (Article 1606 of the Civil Code of the
Philippines), the right to repurchase, in the absence of an
expressed agreement as to time, shall last four years from the date
of the contract. Even if the contract validly vested a right to
Santiago, his attempt to repurchase the properties was made only
a quarter of a century later, which obviously renders the right
expired.
DE LUNA V ABRIGO (Judge of CFI Quezon)
G.R. No. 57455 | January 18, 1990 | Medialdea
FACTS
 January 24, 1965: Prudencia de Luna (parent of
petitioners) donated a portion of 7,500 sqm of Lot No.
3707 of the Cadastral Survey of Lucena, covered by a
TCT, to Luzonian Colleges Inc (Deed of Donation
Intervivos)
o Subject to certain terms and conditions
o Provided for automatic reversion to donor of
donated property in case of violation or non-
compliance
 The foundation failed to comply with the conditions of
the donation (not mentioned how) (automatic reversion
to donor is implied in the case)
April 9, 1971: De Luna revived the donation in favor of the
foundation in a doc Revival of Donation Intervivos subject to the
ff terms and conditions:
 Donee shall construct at his own expense a chapel,
nursery and kindergarten school to be named after St.
Veronica… other constructions on the land strictly in
accordance with the plans and specifications prepared
by O.R. Quinto and Assoc and made part of this
donation; provided the flooring of the altar and parts of
the chapel shall be of granoletic marble
 Construction of the chapel, nursery and kindergarten
shall start immediately and must be at least 70 percent
complete in 3 years and must be completed within 5
years unless extensions are granted by the donor in
writing
 Automatic reversion in case of violation
The foundation acceoted the donation and the donation was
registered
 1971: De Luna and the foundation executed a Deed of
Segregation where the area donated was adjudicated
to the foundation (Lot 3707-B) and TCT was issued
o remaining lot (Lot 3707-A retained by donor)
 September 23, 1980: Petitioners Children of De Luna
(Evelyn, Rosalina, Prudencio Jr, Willard, Antonio and
Joselito) filed a complaint with the RTC alleging that the
terms and conditions of the donation were not complied
with
o Prayed for the cancellation of the donation
and reversion of the donated land to the heirs
(Prudencio died August that year)
Resp foundation answered: it had substantially
complied with the conditions and the donor granted an
indefinite extension to complete construction of the
chapel
o Affirmative defense of prescription
 RTC: Dismissed because action prescribed
Arguments
Petitioner: Stipulation providing for revocation in case of non-
compliance of conditions is tantamount to the consent of the
donee (therefore revocation should be effected)
With regards to court judgment, there’s no prescription yet:

NO PRESCRIPTION Article 1144 applied – action to enforce a

written contract prescribes in 10 years

Regarding application of Art 764:

- Should only be if revocation of donation has NOT been agreed
upon by the parties
- Since there is a stipulation in this case, judicial action for
revocation wouldn’t be necessary

Respondent (RTC Judge)

Revocation effective only upon: 1. Court judgment or 2. Consent
of the donee
Consent of donee must be subsequent to the effectivity of the
donation
Donee already substantially complied by introducing
improvements valued more than the amount of the donated land
– shows that it far from consented

But a court judgment can’t apply because the action prescribed:

PRESCRIBED
Article 764 applied – judicial decree for revocation of donation
prescribes in 4 years
(Start count from April 9, 1976 and ends on April 9, 1980. Action
commenced on September 23, 1980

5
ISSUE: WN Art 764 is applicable – NO
RATIO: Court differentiated the types of donation, from the
viewpoint of motive, purpose or cause:
 Simple – cause is pure liberality
 Remuneratory – donee gives something to reward
past or future services or because of future charges or
burdens, when the value of said services, burdens or
charges is less than the value of the donation
 Onerous – subject to burdens, charges or future
services equal (or more) in value than that of a thing
donated
ITC: Donation is one with an onerous cause
 Made subject to the burden of requiring the donee to
construct a chapel, nursery and kindergarten
Donations with an onerous cause are governed by the rules on
contracts (Art 733, NCC)
Therefore, the rules on contracts and the general rules on
prescription should be applicable
 The stipulation on automatic reversion is a valid
stipulation and is therefore binding (Art 1306: parties
may stipulate… provided not contrary to LMGCPOPP)
 The validity of a stipulation providing for automatic
reversion is in the nature of an agreement granting a
party a right to rescind the contract unilaterally in case
of breach without need of going to court
 In the nature of a resolutory condition of non-
compliance with the contract
Jurisprudence re: automatic reversion (we read these in
Oblicon!)
 Angeles v Calasanz: Rule that a judicial action for
rescission of contract is not nec where contract
provides that it may be revoked and cancelled for
violation of its terms and conditions
 UP v de los Angeles: Nothing in the law that prohibits
the parties from entering into agreement that violation
of terms would cause cancellation thereof, even
without court intervention
o But where one of the parties contests or
denies the rescission, only the final award of
the court of competent jurisdiction can
conclusively settle whether resolution is
proper or not
Judicial intervention is therefore not necessary for obtaining a
judicial declaration rescinding a contract by virtue of
agreement
 Purpose: determine whether or not rescission was
proper
 Therefore, the complaint filed was within the 10 year
prescriptive period
RULING: Petition GRANTED, Respondent judge is ordered to
conduct a trial on the merits to determine the propriety of the
revocation
PIA vs OPLE
FACTS: On 2 December 1978, petitioner Pakistan International
Airlines Corporation (PIA), a foreign corporation licensed to do
business in the Philippines, executed in Manila 2 separate
contracts of employment, one with private respondent Farrales
and the other with private respondent Mamasig. 1 The
contracts, which became effective on 9 January 1979,
provided in pertinent portion as follows:
5. DURATION OF EMPLOYMENT AND PENALTY
This agreement is for a period of 3 years, but can be extended
by the mutual consent of the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein provided, PIA
reserves the right to terminate this agreement at any time by
giving the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one month’s salary.
6
xxx xxx xxx
10. APPLICABLE LAW:
This agreement shall be construed and governed under and by
the laws of Pakistan, and only the Courts of Karachi, Pakistan
shall have the jurisdiction to consider any matter arising out of
or under this agreement.
Farrales & Mamasig (employees) were hired as flight attendants
after undergoing training. Base station was in Manila and flying
assignments to different parts of the Middle East and Europe.
roughly 1 year and 4 months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar Benares,
counsel for and official of the local branch of PIA, sent separate
letters, informing them that they will be terminated effective
September 1, 1980.
Farrales and Mamasig jointly instituted a complaint, for illegal
dismissal and non-payment of company benefits and bonuses,
against PIA with the then Ministry of Labor and Employment
(MOLE).
PIA’s Contention: The PIA submitted its position paper, but no
evidence, and there claimed that both private respondents
were habitual absentees; that both were in the habit of bringing
in from abroad sizeable quantities of “personal effects”; and
that PIA personnel at the Manila International Airport had been
discreetly warned by customs officials to advise private
respondents to discontinue that practice. PIA further claimed
that the services of both private respondents were terminated
pursuant to the provisions of the employment contract.
Favorable decision for the respondents. The Order stated that
private respondents had attained the status of regular
employees after they had rendered more than a year of
continued service; that the stipulation limiting the period of the
employment contract to 3 years was null and void as violative
of the provisions of the Labor Code and its implementing rules
and regulations on regular and casual employment; and that
the dismissal, having been carried out without the requisite
clearance from the MOLE, was illegal and entitled private
respondents to reinstatement with full backwages.
Decision sustained on appeal. Hence, this petition for certiorari
ISSUE: (Relative to the subject) Which law should govern over
the case? Which court has jurisdiction?
HELD: Philippine Law and Philippine courts
Petitioner PIA cannot take refuge in paragraph 10 of
its employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and,
secondly, lays the venue for settlement of any dispute arising
out of or in connection with the agreement “only [in] courts of
Karachi Pakistan”.
We have already pointed out that the relationship is
much affected with public interest and that the otherwise
applicable Philippine laws and regulations cannot be rendered
illusory by the parties agreeing upon some other law to govern
their relationship. the contract was not only executed in the
Philippines, it was also performed here, at least partially; private
respondents are Philippine citizens and respondents, while
petitioner, although a foreign corporation, is licensed to do
business (and actually doing business) and hence resident in
the Philippines; lastly, private respondents were based in the
Philippines in between their assigned flights to the Middle East
and Europe. All the above contacts point to the Philippine
courts and administrative agencies as a proper forum for the
resolution of contractual disputes between the parties.
Under these circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine
agencies and courts of the jurisdiction vested upon them by
Philippine law. Finally, and in any event, the petitioner PIA did
not undertake to plead and prove the contents of Pakistan law
on the matter; it must therefore be presumed that the
applicable provisions of the law of Pakistan are the same as the
applicable provisions of Philippine law.
[DOCTRINE OF PROCESSUAL PRESUMPTION, eh?]
Petition denied._______
NOTES: Another Issue: petitioner PIA invokes paragraphs 5 and one of the parties binds himself to give to another the
6 of its contract of employment with private respondents enjoyment or use of a thing for a price certain, and for a
Farrales and Mamasig, arguing that its relationship with them period which may be definite or indefinite. It cannot be
was governed by the provisions of its contract rather than by
characterized as an ordinary contract of lease under
the general provisions of the Labor Code.
Article 1643 because the full and absolute possession
A contract freely entered into should, of course, be and control of the safety deposit box was not given to
respected, as PIA argues, since a contract is the law between the joint renters - the petitioner and the Pugaos. The
the parties. The principle of party autonomy in contracts is not, guard key of the box remained with the respondent
however, an absolute principle. The rule in Article 1306, of our Bank; without this key, neither of the renters could open
Civil Code is that the contracting parties may establish such
the box. On the other hand, the respondent Bank could
stipulations as they may deem convenient, “provided they are
not likewise open the box without the renter's key.
not contrary to law, morals, good customs, public order or
public policy.” Thus, counter-balancing the principle of
autonomy of contracting parties is the equally general rule that [G.R. No. 102316. June 30, 1997]
provisions of applicable law, especially provisions relating to VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY,
matters affected with public policy, are deemed written into INC., , vs. COURT OF APPEALS AND SEVEN BROTHERS
the contract. Put a little differently, the governing principle is SHIPPING CORPORATION,.
that parties may not contract away applicable provisions of law
especially peremptory provisions dealing with matters heavily SUMMARY:
impressed with public interest. The law relating to labor and
Shipper demands damages from shipping company
employment is clearly such an area and parties are not at
liberty to insulate themselves and their relationships from the due to the loss of its logs caused by the negligence of
impact of labor laws and regulations by simply contracting with shipping company’s captain. However, there is a
each other. It is thus necessary to appraise the contractual stipulation in the contract between the shipper and
provisions invoked by petitioner PIA in terms of their consistency shipping company exempting the latter from liability
with applicable Philippine law and regulations. arising from the captain’s negligence. The trial court said
that the stipulation was void for being contrary to Art.
1745. The Court of Appeals disagreed saying that the
CA AGRO-INDUSTRIAL DEVELOPMENT CORP. VS CA
shipping company acted as a private carrier and that
G.R. NO. 90027 MARCH 3, 1993
Art. 1745 only applies to common carriers and not to
private carriers, hence, a stipulation exempting the
Doctrine: Contract of rent of a safety deposit box is a
owner from liability even for the negligence of its agent
special kind of deposit, which is not to be strictly
is valid if applied to a private carrier. The Supreme Court
governed by the provision on deposit.
upheld the Court of Appeals ruling saying that the
shipping company acted as a private carrier.
FACTS:
Petitioner, CA Agro-Industrial Development Corp, and
FACTS:
spouses Ramon and Pallia Pugao entered into an
On 16 January 1984, plaintiff (Valenzuela
agreement whereby the former purchased from the
Hardwood and Industrial Supply, Inc. – the shipper)
latter two (2) parcels of land in installment basis. Among
entered into an agreement with the defendant Seven
the terms and conditions of the agreement were that
Brothers (the Shipping Corporation) whereby the latter
the titles to the lots shall be transferred to the petitioner
undertook to load on board its vessel M/V Seven
upon full payment of the purchase price and that the
Ambassador the former’s lauan round logs numbering
owner's copies of the certificates of titles thereto, shall be
940 at the port of Maconacon, Isabela for shipment to
deposited in a safety deposit box of any bank. Petitioner
Manila.
and the Pugaos then rented Safety Deposit Box of
Plaintiff (Valenzuela Hardwood) insured the logs
private respondent Security Bank and Trust Company.
against loss and/or damage with defendant South Sea
Thereafter, a certain Mrs. Margarita Ramos offered to
Surety and Insurance Co., Inc. for P2,000,000.00 and the
buy from the petitioner the two (2) parcels of land.
latter issued its Marine Cargo Insurance Policy for
Ramos demanded the execution of a deed of sale,
P2,000,000.00.
which necessarily entailed the production of the
The said vessel M/V Seven Ambassador sank on 25
certificates of title. In view thereof, Aguirre,
January 1984 resulting in the loss of the plaintiffs insured
accompanied by the Pugao’s, then proceeded to the
logs.
respondent Bank to open the safety deposit box and get
A check for P5,625.00 to cover payment of the
the certificates of title. However, when opened in the
premium and documentary stamps due on the policy
presence of the Bank's representative, the box yielded
was tendered due to the insurer (South Sea Surety) but
no such certificates. Mrs. Ramos withdrew her offer and
was not accepted. Instead, the South Sea Surety and
consequence thereof, petitioner allegedly failed to
Insurance Co., Inc. cancelled the insurance policy.
realize the profit prompting them to file for complaint
Plaintiff demanded from South Sea Surety and
against the respondent.
Insurance Co., Inc. the payment of the proceeds of the
policy but the latter denied liability.
The RTC ruled in favor of the respondent bank. The CA
Plaintiff likewise filed a formal claim with
affirmed the assailed decision on the ground that the
defendant Seven Brothers Shipping Corporation for the
contract executed by the petitioner and the bank is a
value of the lost logs but the latter denied the claim.
contract of lease, thus the bank has neither possession
The trial court rendered judgment in favor of plaintiff
nor control over the contents of the safety deposit box.
Valenzuela Hardwood and against defendants Seven
Hence, this present petition.
Brothers and South Sea Surety. Both defendants
appealed.
ISSUE:
WON the contract entered into by Ca-Agro Industrial
COURT OF APPEALS
Development Corp. and Security Bank and Trust
The issue resolved by the Court of appeals was
Company is a contract of rent.
whether defendants shipping corporation and the surety
company are liable to the plaintiff for the latter’s lost
RULING:
logs.
No, the SC held that the contract for the rent of the
The Court of Appeals affirmed the RTC
safety deposit box executed by the parties is not an
judgment against South Sea Surety and Insurance
ordinary contract of lease as defined in Article 1643 of
the Civil Code which states that, in the lease of things,
7
Company by saying that said insurance company is still
liable to the plaintiff Valenzuela Hardwood.
It however modified the RTC ruling against Seven
Brothers Shipping Corporation saying that it was not
liable for the lost cargo.
According to the Court of Appeals, it appears
that there is a stipulation in the charter party that the ship
owner would be exempted from liability in case of loss.
It further held that the trial court erred in applying the
provisions of the Civil Code (specifically Art. 1745) on
common carriers to establish the liability of the shipping
corporation. The provisions on common carriers should
not be applied where the carrier is not acting as such
but as a private carrier.
Under American jurisprudence, a common
carrier undertaking to carry a special cargo or chartered
to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the
owner from liability even for the negligence of its agent
is valid (Home Insurance Company, Inc. vs. American
Steamship Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held
liable for the loss of the logs.
Plaintiff Valenzuela Hardwood is assailing the Court of
Appeals’ judgment before the Supreme Court with the
following issue.
ISSUE:
Whether or not a stipulation in the charter party
exempting the shipping corporation (Seven Brothers)
from liability for the loss of the shipper’s (Valenzuela
Hardwood) logs arising from the negligence of said
Shipping Corporation’s captain is valid.
RULING:
Yes, it is valid. Valenzuela Hardwood’s petition is
NOT meritorious.
The charter party between the Valenzuela
Hardwood (shipper) and Seven Brothers (shipping
company) stipulated that the owners shall not be
responsible for loss, split, short-landing, breakages and
any kind of damages to the cargo.
It should be noted at the outset that the
proximate cause of the sinking of M/V Seven
Ambassadors resulting in the loss of its cargo was the
snapping of the iron chains and the subsequent rolling of
the logs to the portside due to the negligence of the
captain in stowing and securing the logs and not due to
fortuitous event. Likewise undisputed is the status of
Private Respondent Seven Brothers as a private carrier
when it contracted to transport the cargo of Petitioner
Valenzuela.
The trial court deemed the charter party
stipulation void for being contrary to public policy, citing
Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar
stipulations shall be considered unreasonable, unjust
and contrary to public policy:
(1) That the goods are transported at the risk of the
owner or shipper;
(2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
(3) That the common carrier need not observe any
diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of
diligence less than that of a good father of a family, or
of a man of ordinary prudence in the vigilance over the
movables transported;
(5) That the common carrier shall not be responsible for
the acts or omissions of his or its employees;
(6) That the common carriers liability for acts committed
by thieves, or of robbers who do not act with grave or
irresistible threat, violence or force, is dispensed with or
diminished;
8
(7) That the common carrier is not responsible for the loss,
destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or
other equipment used in the contract of carriage.
As adverted to earlier, it is undisputed that
private respondent had acted as a private carrier in
transporting petitioner’s lauan logs. Thus, Article 1745
and other Civil Code provisions on common carriers
which were cited by petitioner may not be applied
unless expressly stipulated by the parties in their charter
party
In a contract of private carriage, the parties
may validly stipulate that responsibility for the cargo rests
solely on the charterer, exempting the shipowner from
liability for loss of or damage to the cargo caused even
by the negligence of the ship captain. Pursuant to Article
1306 of the Civil Code, such stipulation is valid because
it is freely entered into by the parties and the same is not
contrary to law, morals, good customs, public order, or
public policy. Indeed, their contract of private carriage
is not even a contract of adhesion. We stress that in a
contract of private carriage, the parties may freely
stipulate their duties and obligations which perforce
would be binding on them. Unlike in a contract involving
a common carrier, private carriage does not involve the
general public. Hence, the stringent provisions of the
Civil Code on common carriers protecting the general
public cannot justifiably be applied to a ship transporting
commercial goods as a private carrier. Consequently,
the public policy embodied therein is not contravened
by stipulations in a charter party that lessen or remove
the protection given by law in contracts involving
common carriers.
As a private carrier, a stipulation exempting the
owner from liability for the negligence of its agent is not
against public policy, and is deemed valid. Such
doctrine We find reasonable. The Civil Code provisions
on common carriers should not be applied where the
carrier is not acting as such but as a private carrier. The
stipulation in the charter party absolving the owner from
liability for loss due to the negligence of its agent would
be void only if the strict public policy governing common
carriers is applied. Such policy has no force where the
public at large is not involved, as in this case of a ship
totally chartered for the use of a single party.
In fine, the respondent appellate court aptly
stated that [in the case of] a private carrier, a stipulation
exempting the owner from liability even for the
negligence of its agent is valid.
The general public enters into a contract of
transportation with common carriers without a hand or a
voice in the preparation thereof. The riding public merely
adheres to the contract; even if the public wants to, it
cannot submit its own stipulations for the approval of the
common carrier. Thus, the law on common carriers
extends its protective mantle against one-sided
stipulations inserted in tickets, invoices or other
documents over which the riding public has no
understanding or, worse, no choice. Compared to the
general public, a charterer in a contract of private
carriage is not similarly situated. It can -- and in fact it
usually does -- enter into a free and voluntary
agreement. In practice, the parties in a contract of
private carriage can stipulate the carriers obligations
and liabilities over the shipment which, in turn, determine
the price or consideration of the charter. Thus, a
charterer, in exchange for convenience and economy,
may opt to set aside the protection of the law on
common carriers. When the charterer decides to
exercise this option, he takes a normal business risk.
Petitioner Valenzuela insists that the charter
party stipulation is contrary to Articles 586 and 587 of the
Code of Commerce which confer on petitioner the right
to recover damages from the shipowner and ship agent
for the acts or conduct of the captain. We are not
persuaded. Whatever rights petitioner may have under
the aforementioned statutory provisions were waived
when it entered into the charter party. Article 6 of the
Civil Code provides that (r)ights may be waived, unless
the waiver is contrary to law, public order, public policy,
morals, or good customs, or prejudicial to a person with
a right recognized by law.
BUSTAMANTE VS ROSEL DIGEST
FACTS:
Respondent Rosel entered into a loan agreement with
petitioner spouses Bustamante wherein the latter
borrowed P100,000 payable in 2 years. To guarantee
payment, the spouses put as collateral 70 sq m of their
lot inclusive of the apartment therein. In the event of
borrowers default, contract states the lender has the
option to buy or purchase the collateral for P200,000.
When the loan was about to mature on March
1, 1989, respondents proposed to buy the said portion at
the pre-set price. Petitioners, however, refused and
requested for extension of time to pay the loan. On the
due date, petitioners tendered payment of the loan to
respondents which the latter refused to accept. On
March 4, 1990, respondents sent a demand letter asking
petitioner to sell the collateral pursuant to the option to
buy embodied in the loan agreement. Prior to that, they
filed with the RTC an action for specific performance in
February.
ISSUE:
Is the respondent justified in compelling petitioners to sell
the portion of the lot pursuant to the stipulation in the
loan?
HELD:
No as doing so is tantamount to pactum
commissorium. The elements of pactum commissorium
are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal
obligation within the stipulated period.
In this case, the intent to appropriate the
property given as collateral in favor of the creditor
appears to be evident, for the debtor is obliged to
dispose of the collateral at the pre-agreed
consideration amounting to practically the same
amount as the loan. In effect, the creditor acquires the
collateral in the event of non payment of the loan. This is
within the concept of pactum commissorium. Such
stipulation is void.
[G.R. No. 183789 : August 24, 2011]
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT
CORPORATION, PETITIONER, VS. POZZOLANIC
PHILIPPINES INCORPORATED, RESPONDENT.
FACTS
In 1986, Pozzolanic Australia won the public
bidding for the purchase of the fly ash generated by
NPC's power plant in Batangas. Pozzolanic Australia then
negotiated with NPC for a long-term contract for the
purchase of all fly ash to be produced by NPC's future
power plants. NPC accepted Pozzolanic Australia's offer
and they entered into a long-term contract, dated 20
October 1987, denominated as "Contract for the
Purchase of Fly Ash of Batangas Coal-Fired Thermal
Power Plant Luzon" (the Batangas Contract).
Under Article I of the contract, NPC, referred to
therein as the "CORPORATION," granted Pozzolanic
Australia, the "PURCHASER," a right of first refusal to
purchase the fly ash generated by the coal-fired plants
9
that may be put up by NPC in the future. The specific
provision of the contract states:
PURCHASER has first option to purchase Fly Ash under
similar terms and conditions as herein contained from
the second unit of Batangas Coal-Fired Thermal Plant
that the CORPORATION may construct. PURCHASER may
also exercise the right of first refusal to purchase fly ash
from any new coal-fired plants which will be put up by
CORPORATION.
In 1988, while the necessary clearances and
approvals were being obtained by Pozzolanic Australia
in connection with the operation of its fly ash business in
the Philippines, its major stockholders decided that it
would be more advantageous for the company to
organize a Philippine corporation and to assign to such
corporation Pozzolanic Australia's rights to the
commercial use of fly ash in the Philippines. Accordingly,
in April 1989, respondent Pozzolanic was formally
incorporated to take over Pozzolanic Australia's business
in the Philippines. Respondent then commenced to
exercise its rights under the Batangas contract in June,
1989.
In 1998, the Masinloc Coal-Fired Thermal Power Plant
(Masinloc Plant) started operations to provide power for
NPC. Late that year, respondent began the installation
of its fly ash processing equipment in the Masinloc Plant
and began off taking the fly ash produced therein.
Subsequently, on 15 February 1999, NPC and
respondent, on an interim basis and prior to the conduct
of a public bidding for the contract to purchase the
Masinloc Plant's fly ash, executed a contract whereby
respondent was given the right to purchase the said fly
ash for a period of one year. The fourth and fifth
"WHEREAS" clauses of the contract provide:
WHEREAS, under the `Contract for the Purchase
of the Fly Ash of Batangas Coal-Fired Thermal Power
Plant' dated 20 October 1987, PURCHASER was granted
the right of first refusal over any and all fly ash that may
be produced by any of NPC's coal-fired power plants in
the Philippines;
WHEREAS, NPC intends to bid out the long term
contract for the Fly Ash that may be produced by the
(Masinloc Coal Fired Thermal Power) Plant subject to the
second paragraph of Article I of the original contract
between the parties which was signed on 20 October
1987 giving PURCHASER the right of first refusal.
In October 1999, the Sual Coal-Fired Power Plant
started providing electricity in the Luzon region. NPC
thereafter caused to be published in the Philippine Star
and the Manila Bulletin an "Invitation to Pre-Qualify and
to Bid," inviting all interested buyers to pre-qualify for the
purchase of fly ash from the Masinloc and/or Sual Power
Plants.
As a result, respondent sent letters to NPC calling
its attention to respondent's right of first refusal under the
Batangas Contract. It also demanded that any tender
documents to be issued in connection with the bidding
on the right to purchase the Masinloc and Sual Plants' fly
ash include notices informing prospective bidders of
respondent's right of first refusal.
In a letter dated 7 March 2000, NPC informed
respondent that it had decided to defer indefinitely the
bidding on the right to purchase the Masinloc Plant's fly
ash and to proceed first with the bidding on the right to
purchase the Sual Plant's fly ash. Thus, on 7 April 2000,
NPC released the tender documents for the bidding on
the Sual Plant's fly ash, which tender documents made
no reference to respondent's right of first refusal.
This prompted respondent to file a complaint
(later amended) with the trial court praying that NPC be
ordered to allow Pozzolanic to exercise its right of first
refusal by permitting it to match the price and terms
offered by the winning bidder and by awarding the
contract for the purchase of the Sual Plant's fly ash to
Pozzolanic if it matches the price and terms offered by
said winning bidder.
While the case was pending before the lower
court, NPC decided to also dispose of the fly ash from
the Masinloc Plant through public bidding, without
allowing respondent to exercise its right of first refusal.
Thus, respondent filed a Supplementary Complaint,
dated 8 August 2002, praying for the same reliefs as
those prayed for in the amended complaint earlier filed,
but as regards the Masinloc Plant.
Meanwhile, on 4 June 2001, Congress enacted
the EPIRA (RA 9136) which created PSALM. This resulted
in the filing of a Second Supplementary Complaint,
dated 5 March 2003, impleading petitioner PSALM as a
necessary and indispensable party.
The litigation became more complicated when
petitioner, NPC, and the Department of Energy entered
into a Memorandum of Agreement with the Provincial
Government of Zambales and several local government
units of Zambales, pursuant to which the Provincial
Government of Zambales was awarded the exclusive
right to withdraw the fly ash from the Masinloc Plant. With
this development, respondent filed a Third
Supplementary Complaint seeking the annulment of the
aforesaid Memorandum of Agreement and other
documents related thereto. This complaint was
dismissed by the trial court on the ground of forum
shopping, it appearing that the Province of Zambales, et
al. had previously filed a case against respondent and
NPC, claiming exclusive right to withdraw the fly ash of
the Masinloc Plant.
Respondent appealed the order of dismissal to
the Court of Appeals.
On 18 July 2007, while the appeal was pending,
respondent and the Provincial Government of Zambales
executed an "Agreement" (the Masinloc Contract) by
virtue of which the Province of Zambales awarded to
respondent the exclusive right to withdraw the fly ash
from the Masinloc Power Plant. Respondent then moved
for the dismissal of its appeal in the Court of Appeals. As
a result, the assailed Order of the trial court dismissing
respondent's Third Supplementary Complaint became
final.
Also, previously, on 30 March 2005, respondent
and NPC entered into a "Purchase Agreement for the
Purchase of Fly Ash of Sual Coal-Fired Thermal Power
Plant" (the Sual Contract) whereby NPC awarded to
respondent the exclusive right to withdraw the fly ash
from the Sual Plant.
As a result, NPC filed, on 4 February 2008, a
Motion to Dismiss the Complaint against it on the ground
that the issues between it and respondent had become
moot and academic. This is in view of the Purchase
Agreement executed by NPC and respondent for the fly
ash of the Sual Plant and the Agreement between
respondent and the Provincial Government of Zambales
with respect to the fly ash of the Masinloc Plant.
During the hearing on NPC's Motion to Dismiss
held on 7 February 2008, the trial court ordered herein
petitioner PSALM and respondent Pozzolanic to
comment on the Motion. Petitioner, through counsel,
manifested that in addition to commenting on the
Motion to Dismiss, it would also like to challenge, through
a position paper, the validity of respondent's right of first
refusal.
Respondent herein interposed no objection to
the Motion to Dismiss. On the other hand, in its Comment
dated 14 February 2008, petitioner asserted that the
following issues should first be resolved before a
resolution on the Motion to Dismiss may be had:
10
1. whether or not fly ash, which is not yet existing,
can be considered assets of the government, the
disposition of which is subject to government rules
particularly public bidding;
2. whether or not the alleged right of first refusal of
plaintiff is not contrary to law; and
3. whether or not PSALM is bound by the said
alleged right.
Petitioner thus prayed that resolution on the
Motion to Dismiss be held in abeyance pending
determination of the issues concerning respondent's
alleged right of first refusal.
Pursuant to its manifestation in open court
during the 7 February 2008 hearing on NPC's Motion to
Dismiss, petitioner submitted its Position Paper on 29
February 2008 raising the same issues as those in its
Comment to NPC's Motion to Dismiss. Petitioner prayed
that the complaint against it be dismissed and that
respondent's right of first refusal contained in the second
paragraph, Article 1 of the Batangas Contract be
declared void ab initio for being contrary to law and
public policy.
In an Order dated 17 March 2008, the trial court
dismissed in toto the Amended Complaint and the First
Supplementary Complaint. The Second Supplementary
Complaint was PARTIALLY DISMISSED insofar as it refers to
herein respondent's complaint against NPC only. Thus,
on 30 April 2008, the trial court rendered the herein
assailed Decision declaring respondent's right of first
refusal valid and binding on petitioner. The Motion for
Reconsideration and Supplemental Motion for
Reconsideration filed by petitioner seeking a reversal of
the decision of the trial court were both denied for lack
of merit.
ISSUES
Petitioner PSALM prays for the reversal of the challenged
decision on the following grounds:
1. THE TRIAL COURT WAS DIVESTED OF
JURISDICTION AFTER IT ISSUED THE ORDER DATED 17
MARCH 2008 DISMISSING WITH PREJUDICE THE AMENDED
COMPLAINT AND THE FIRST SUPPLEMENTARY COMPLAINT.
THUS, THE "DECISION" DATED 30 APRIL 2008 RENDERED
SUBSEQUENT TO SUCH DISMISSAL IS NULL AND VOID; AND
2. EVEN ASSUMING THAT THE TRIAL COURT WAS
NOT DIVESTED OF JURISDICTION, THE RIGHT OF FIRST
REFUSAL IS NOT VALID, AND THEREFORE, WITHOUT
BINDING EFFECT, FOR BEING CONTRARY TO PUBLIC
POLICY.
DECISION
Petitioner contends that by virtue of the Order of the trial
court dated 17 March 2008, respondent's Amended
Complaint was dismissed with prejudice; and, since no
motion for reconsideration or appeal was filed by any of
the parties in the lower court, the Order attained finality.
Thus, petitioner argues, the trial court can no longer take
any further action since it had lost all power or authority
over the case. The Order of dismissal effectively deprived
it of jurisdiction.
RATIONALE
1. The grant to respondent of the right of first refusal
constitutes an unauthorized provision in the contract
that was entered into pursuant to the bidding.
2. The right to buy fly ash precedes and is the basis
of the right of first refusal, and the consequent right
cannot be acquired together with and at the same time
as the precedent right.
3. The right of first refusal is against the public policy
that contracts must be awarded through public bidding.
REPUBLIC VS. PLDT
(1969)
FACTS:
Sometime in 1933, the defendant PLDT entered into an
agreement with RCA Communications Inc., an
American corporation, whereby telephone messages
coming from the US and received by RCA’s domestic
station, could automatically be transferred to the lines of
PLDT, and vice versa.
The plaintiff through the Bureau of Telecommunications,
after having set up its own Government Telephone
System, by utilizing its own appropriation and equipment
and by renting trunk lines of the PLDT, entered into an
agreement with RCA for a joint overseas telephone
service.
Alleging that plaintiff is in competition with them, PLDT
notified the former and receiving no reply, disconnected
the trunk lines being rented by the same; thus, prompting
the plaintiff to file a case before the CFI praying for
judgment commanding PLDT to execute a contract with
the Bureau for the use of the facilities of PLDT’s telephone
system, and for a writ of preliminary injunction against
the defendant to restrain the severance of the existing
trunk lines and restore those severed.
ISSUE:
Whether or not the defendant PLDT can be compelled
to enter into a contract with the plaintiff.
HELD:
“ x x x while the Republic may not compel the PLDT to
celebrate a contract with it, the Republic may, in the
exercise of the sovereign power of eminent domain,
require the telephone company to permit
interconnection of the government telephone system
and that of the PLDT, as the needs of the government
service may require, subject to the payment of just
compensation to be determined by the court.”
G.R. No. 116665 March 20, 1996
MELQUIADES D. AZCUNA, JR., ,
vs.
COURT OF APPEALS, ET. AL.,.
Under a one (1) year lease contract commencing on
July 1, 1992 and ending on June 30, 1993 but renewable
upon agreement, herein petitioner Azcuna, Jr., as lessee,
occupied three (3) units (C, E and F) of the building
owned by private respondent Barcelona's family. Came
expiration date of the lease without an agreed renewal
thereof and coupled by petitioner's failure to surrender
the leased units despite private respondent's demands,
private respondent filed before the Municipal Trial Court
an ejectment case against petitioner. Judgment of that
inferior court, affirmed in its entirety by the Regional Trial
Court and herein public respondent Court of Appeals on
subsequent appeals taken by petitioner, favored private
respondent, the decretal portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in
favor of the plaintiff, Ernesto E. Barcelona, ordering the
defendant Melquiades D. Azcuna, Jr., and all persons
claiming rights under him to vacate the premises known
as Units C, E and F, in the building owned by plaintiff's
family located along Congressional Avenue, Quezon
City. Defendant is likewise ordered to pay the following:
1. The sum of P25,000.00 monthly as rental for
continued use by defendant of the three (3) units of
leased premises in question starting July 1, 1993 less the
amount that have been deposited or given by the
defendant to the plaintiff up to such time the defendant
and all persons claiming rights under him finally vacate
the aforesaid premises;
11
2. The further sum of P3,000.00 per day, by way of
damages for his failure to turn over peacefully the three
(3) commercial spaces to the plaintiff from July 1, 1993
until such time the defendant and all persons claiming
rights under him vacate the premises;
3. The further sum of P5,000.00 by way of attorney's
fees; and
4. The cost of this suit.
The counter-claim of the defendant is hereby Dismissed,
for lack of merit. SO ORDERED.
Petitioner now comes to the Court via the instant petition
not to contest his ouster from the leased premises nor the
amount monthly rental he was adjudged to pay until he
vacates the same, but only to take particular exception
to respondent CA's decision insofar as it affirmed the
municipal trial court's award of P3,000.00 per day as
damages (sub-paragraph 2 of the dispositive portion just
quoted). It is petitioner's claim that such award, in
addition to the fair rental value or reasonable
compensation for the use and occupation of the
premises (sub-paragraph 1), is improper in the light of the
doctrine enunciated in the cases of "Felesilda v.
Villanueva,"1 "Shoemart, Inc. v. CA"2 and "Hualam
Construction and Development Corp. v. CA"3 cited by
petitioner, that "the only damages that can be
recovered in an ejectment suit are the fair rental value
or the reasonable compensation for the use and
occupation of the real property. Other damages must
be claimed in an ordinary action".
Petitioner's reliance on such doctrine is misplaced,
inasmuch as the "Felesilda," "Shoemart" and "Hualam"
cases dealt with additional damages and charges other
than liquidated damages, defined as ". . . those agreed
upon by the parties to a contract, to be paid in case of
breach thereof ".4 Here, the municipal trial court, in
making the "P3,000.00 per day" award, was merely
enforcing what was stipulated upon in black and white
by private respondent-lessor and petitioner-lessee
appearing in paragraph 10 of the lease contract which
reads:
That after the termination of the Lease, the LESSEE shall
peaceably deliver to the LESSOR the leased premises
vacant and unencumbered and in good tenantable
conditions minus the ordinary wear and tear. In case the
LESSEE's failure or inability to do so, LESSOR has the right
to charge the LESSEE P1,000.00 per day as damages
without prejudice to other remedies which LESSOR is
entitled in the premise. (Emphasis supplied).
This is clearly an agreement for liquidated damages —
entitling private respondent to claim a stipulated
amount by way of damages (correctly totalling
P3,000.00 per day as there were three (3) units being
leased by petitioner) over and above other damages
still legally due him, i.e., the fair rental value for the use
and occupation of the property as provided for in
Section 8, Rule 70 of the Rules of Court. The freedom of
the contracting parties to make stipulations in their
contract provided they are not contrary to law, morals,
good customs, public order or public policy is so settled,
and the Court finds nothing immoral or illegal with the
indemnity/penalty clause of the lease contract
(paragraph 10) which does not appear to have been
forced upon or fraudulently foisted on petitioner.
Petitioner cannot now evade further liability for
liquidated damages, for "after entering into such an
agreement, petitioner cannot thereafter turn his back on
his word with a plea that on him was inflicted a penalty
shocking to the conscience and impressed with iniquity
as to call for the relief sought on the part of a judicial
tribunal."5
The controlling case here is, as correctly invoked by
private respondent, "Gozon v. Vda. de Barrameda"6
which involved similar facts and the same issue raised by
herein petitioner. There, the then Court of First Instance
of Rizal affirmed the judgment of the then justice of the
peace court of Caloocan in a detainer case ordering
defendant-appellant Barrameda to pay complainant
Gozon the sum of P1,622.43 as rentals due up to July 3,
1958 plus P5,000.00 as liquidated damages, and costs.
Appellant Barrameda likewise assailed the propriety of
the P5,000.00 award in addition to the rentals. The Court
upheld the then CFI's affirmatory decision by disposing
of appellant Barrameda's protestation in this wise:
This Court has often stated that inferior courts have
exclusive jurisdiction over cases of forcible entry and
detainer regardless of the value of damages
demanded. It has also ruled that the damages that may
be recovered in actions for ejectment are those
equivalent to a reasonable compensation for the use
and occupation of the premises by defendant.
Nonetheless, this latter legal proposition is not pertinent
to the issue raised in the instant case because here, the
damage sought to be recovered had previously been
agreed to by lessee (in the contract of lease) and
imposed by lessor by way of damages. Besides, nobody
can affirm that the liquidated amount of damages
stipulated in the lease contract was not due to
occupation or loss of possession of the premises and
non-compliance with the contract. (Emphasis supplied).
WHEREFORE, the instant petition for review by way of
certiorari is hereby DENIED. SO ORDERED.
PAKISTAN INTERNATIONAL AIRLINES CORPORATION v.
HON. BLAS F. OPLE, FARRALES, MAMASIG [G.R. No.
61594. September 28, 1990.]
Nature of the Case: A complaint for illegal dismissal and
non-payment of company benefits and bonuses against
PIA with the then Ministry of Labor and Employment.
FACTS
Pakistan International Airlines Corporation ("PIA"), a
foreign corporation licensed to do business in the
Philippines, executed in Manila two (2) separate
contracts of employment, one with private respondent
Ethelynne B. Farrales and the other with private
respondent Ma. M.C. Mamasig.
The contracts provided that (1) the Duration of
Employment is for a period of 3 years, (2) PIA reserves the
right to terminate this agreement at any time by giving
the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by
paying the EMPLOYEE wages equivalent to one month’s
salary; and (3) the agreement shall be construed and
governed under and by the laws of Pakistan, and only
the Courts of Karachi, Pakistan shall have the jurisdiction
to consider any matter arising out of or under this
agreement.
Farrales and Mamasig then commenced training in
Pakistan and after such, they began discharging their
job functions as flight attendants with base station in
Manila and flying assignments to different parts of the
Middle East and Europe.
Roughly one (1) year and four (4) months prior to the
expiration of the contracts of employment, PIA sent
separate letters to private respondents advising both
that their services as flight stewardesses would be
12
terminated. PIA claimed that both were habitual
absentees, were in the habit of bringing in from abroad
sizeable quantities of "personal effects".
Prior Proceedings: Regional Director of MOLE ordered
the reinstatement of private respondents with full
backwages or, in the alternative, the payment to them
of the amounts equivalent to their salaries for the
remainder of the fixed three-year period of their
employment contracts having attained the status of
regular employees.
On appeal the Deputy Minister of MOLE, adopted the
findings of fact and conclusions of the Regional Director
and affirmed the latter’s award save for the portion
thereof giving PIA the option, in lieu of reinstatement, "to
pay each of the complainants [private respondents]
their salaries corresponding to the unexpired portion of
the contract[s] [of employment] . . ." Hence, this instant
Petition for Certiorari by PIA.
ISSUE:
Were the orders issued in disregard and in violation of
petitioner’s rights under the employment contracts with
private respondents?
HELD:
NO.
PIA contends that the provisions of the contract
must govern rather than the general provisions of the
Labor Code. PIA invokes paragraphs 5 of the contract
that set a term of three (3) years for that relationship,
extendible by agreement between the parties and
paragraph 6 which provided that PIA had the right to
terminate the employment agreement at any time by
giving one-month’s notice to the employee or, in lieu of
such notice, one-month’s salary.
A contract freely entered into should, of course, be
respected, as PIA argues, since a contract is the law
between the parties. The principle of party autonomy in
contracts is not, however, an absolute principle. The rule
in Article 1306, of our Civil Code is that the contracting
parties may establish such stipulations as they may deem
convenient," provided they are not contrary to law,
morals, good customs, public order or public policy."
Thus, counter-balancing the principle of autonomy of
contracting parties is the equally general rule that
provisions of applicable law, especially provisions
relating to matters affected with public policy, are
deemed written into the contract.
The law relating to labor and employment is heavily
impressed with public interest and parties are not at
liberty to insulate themselves and their relationships from
the impact of labor laws and regulations by simply
contracting with each other. It is thus necessary to
appraise the contractual provisions invoked by
petitioner PIA in terms of their consistency with
applicable Philippine law and regulations.
The entire purpose behind the development of
legislation culminating in the present Article 280 of the
Labor Code clearly appears to have been, as already
observed, to prevent circumvention of the employee’s
right to be secure in his tenure, the clause in said article
indiscriminately and completely ruling out all written or
oral agreements conflicting with the concept of regular
employment as defined therein should be construed to
refer to the substantive evil that the Code itself has
singled out: agreements entered into precisely to
circumvent security of tenure. virtua1aw library
Examining the provisions of paragraphs 5 and 6 of the
employment agreement between petitioner PIA and
private respondents, we consider that those provisions
must be read together and when so read, the fixed
period of three (3) years specified in paragraph 5 will be
seen to have been effectively neutralized by the
provisions of paragraph 6 of that agreement. Paragraph
6 in effect took back from the employee the fixed three
(3)-year period ostensibly granted by paragraph 5 by
rendering such period in effect a facultative one at the
option of the employer PIA. For petitioner PIA claims to
be authorized to shorten that term, at any time and for
any cause satisfactory to itself, to a one-month period,
or even less by simply paying the employee a month’s
salary. Because the net effect of paragraphs 5 and 6 of
the agreement here involved is to render the
employment of private respondents Farrales and
Mamasig basically employment at the pleasure of
petitioner PIA, the Court considers that paragraphs 5
and 6 were intended to prevent any security of tenure
from accruing in favor of private respondents even
during the limited period of three (3) years, 13 and thus
to escape completely the thrust of Articles 280 and 281
of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its
employment agreement which specifies, firstly, the law
of Pakistan as the applicable law of the agreement and,
secondly, lays the venue for settlement of any dispute
arising out of or in connection with the agreement "only
[in] courts of Karachi, Pakistan."
The circumstances of the case show substantive
contacts between Philippine law and Philippine courts,
on the one hand, and the relationship between the
parties, upon the other: the contract was not only
executed in the Philippines, it was also performed here,
at least partially; private respondents are Philippine
citizens and residents, while petitioner, although a
foreign corporation, is licensed to do business (and
actually doing business) and hence resident in the
Philippines; lastly, private respondents were based in the
Philippines in between their assigned flights to the Middle
East and Europe. All the above contacts point to the
Philippine courts and administrative agencies as a
proper forum for the resolution of contractual disputes
between the parties. Under these circumstances,
paragraph 10 of the employment agreement cannot be
given effect so as to oust Philippine agencies and courts
of the jurisdiction vested upon them by Philippine law.
Finally, and in any event, the petitioner PIA did not
undertake to plead and prove the contents of Pakistan
law on the matter; it must therefore be presumed that
the applicable provisions of the law of Pakistan are the
same as the applicable provisions of Philippine law.
RULING: We conclude that private respondents Farrales
and Mamasig were illegally dismissed. Petition for
Certiorari is hereby DISMISSED for lack of merit, and the
Order dated 12 August 1982 of public respondent is
hereby AFFIRMED, except that (1) private respondents
are entitled to three (3) years backwages, without
deduction or qualification; and (2) should reinstatement
of private respondents to their former positions or to
substantially equivalent positions not be feasible, then
petitioner shall, in lieu thereof, pay to private
respondents separation pay amounting to one (1)-
month’s salary for every year of service actually
rendered by them and for the three (3) years putative
service by private respondents. The Temporary
Restraining Order issued on 13 September 1982 is hereby
LIFTED. Costs against petitioner.
13
INDUSTRIAL PERSONNEL v. JOSE G. DE VERA, GR No.
205703, 2016-03-07
FACTS:
Petitioner SNC Lavalin Engineers & Contractors, Inc.
(SNC-Lavalin) is the principal of IPAMS, a Canadian
company with business interests in several countries. On
the other hand, respondent... is a licensed general
surgeon in the Philippines.
Arriola was offered by SNC-Lavalin... the position of
Safety Officer... in Madagascar.
Arriola was then hired... and his overseas employment
contract was processed with the Philippine Overseas
Employment Agency (POEA)
According to Arriola, he signed the contract of
employment in the Philippines.
Arriola started working in Madagascar.
After three months, Arriola received a notice of pre-
termination of employment... due to diminishing
workload in the area of his expertise and the
unavailability of alternative assignments.
Consequently,... Arriola was repatriated. SNC-Lavalin
deposited in Arriola's bank account his pay amounting
to Two Thousand Six Hundred Thirty Six Dollars and Eight
Centavos (CA$2,636.80), based on Canadian labor law.
Aggrieved, Arriola filed a complaint against the
petitioners for illegal dismissal and non-payment of
overtime pay, vacation leave and sick leave pay before
the Labor Arbiter (LA). He claimed that SNC-Lavalin still
owed him unpaid salaries equivalent to the three-month
unexpired portion of his contract, amounting to, more or
less, One Million Sixty-Two Thousand Nine Hundred Thirty-
Six Pesos (P1,062,936.00). He asserted that SNC-Lavalin
never offered any valid reason for his early termination
and that he was not given sufficient notice regarding the
same. Arriola also insisted that the petitioners must prove
the applicability of Canadian law before the same
could be applied to his employment contract.
ISSUES:
When can a foreign law govern an overseas
employment contract?
RULING:
A. No. 8042, or the Migrant Workers Act, was
enacted to institute the policies on overseas
employment and to establish a higher standard of
protection and promotion of the welfare of migrant
workers.
It emphasized that while recognizing the
significant contribution of Filipino migrant workers to the
national economy through their foreign exchange
remittances, the State does not promote overseas
employment as a means to sustain economic growth
and achieve national development.
Although it acknowledged claims arising out of
law or contract involving Filipino workers,... it does not
categorically provide that foreign laws are absolutely
and automatically applicable in overseas employment
contracts.
A contract freely entered into should, of course,
be respected, as PIA argues, since a contract is the law
between the parties. The principle of party autonomy in
contracts is not, however, an absolute principle. The rule
in Article 1306, of our Civil Code is that the contracting
parties may establish such stipulations as they may deem
convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy."
Thus, counter-balancing the principle of autonomy of
contracting parties is the equally general rule that
provisions of applicable law, especially provisions
relating to matters affected with public policy, are
deemed written into the contract. Put a little differently,
the governing principle is that parties may not contract
away applicable provisions of law especially
peremptory provisions dealing with matters heavily
impressed with public interest. The law relating to labor
and employment is clearly such an area and parties are
not at liberty to insulate themselves and their
relationships from the impact of labor laws and
regulations by simply contracting with each other.
the general rule is that Philippine laws apply
even to overseas employment contracts. This rule is
rooted in the constitutional provision of Section 3, Article
XIII that the State shall afford full protection to labor,
whether local or overseas. Hence, even if the OFW has
his employment abroad, it does not strip him of his rights
to security of tenure, humane conditions of work and a
living wage under our Constitution.
As an exception, the parties may agree that a
foreign law shall govern the employment contract. A
synthesis of the existing laws and jurisprudence reveals
that this exception is subject to the following
requisites:That it is expressly stipulated in the overseas
employment contract that a specific foreign law shall
govern;That the foreign law invoked must be proven
before the courts pursuant to the Philippine rules on
evidence;That the foreign law stipulated in the overseas
employment contract must not be contrary to law,
morals, good customs, public order, or public policy of
the Philippines; andThat the overseas employment
contract must be processed through the POEA.The
Court is of the view that these four (4) requisites must be
complied with before the employer could invoke the
applicability of a foreign law to an overseas
employment contract.
With these requisites, the State would be able to
abide by its constitutional obligation to ensure that the
rights and well-being of our OFWs are fully protected.
If the first requisite is absent, or that no foreign
law was expressly stipulated in the employment contract
which was executed in the Philippines, then the
domestic labor laws shall apply in accordance with the
principle of lex loci contractus.
If the second requisite is lacking, or that the
foreign law was not proven pursuant to Sections 24 and
25 of Rule 132 of the Revised Rules of Court, then the
international law doctrine of processual presumption
operates. The said doctrine declares that "[w]here a
foreign law is not pleaded or, even if pleaded, is not
proved, the presumption is that foreign law is the same
as ours."
If the third requisite is not met, or that the foreign
law stipulated is contrary to law, morals, good customs,
public order or public policy, then Philippine laws
govern. This finds legal bases in the Civil Code,
specifically: (1) Article 17, which provides that laws which
have, for their object, public order, public policy and
good customs shall not be rendered ineffective by laws
of a foreign country; and (2) Article 1306, which states
that the stipulations, clauses, terms and conditions in a
contract must not be contrary to law, morals, good
customs, public order, or public policy.
14
Finally, if the fourth requisite is missing, or that the
overseas employment contract was not processed
through the POEA, then Article 18 of the Labor Code is
violated. Article 18 provides that no employer may hire
a Filipino worker for overseas employment except
through the boards and entities authorized by the
Secretary of Labor. In relation thereto, Section 4 of R.A.
No. 8042, as amended, declares that the State shall only
allow the deployment of overseas Filipino workers in
countries where the rights of Filipino migrant workers are
protected. Thus, the POEA, through the assistance of the
Department of Foreign Affairs, reviews and checks
whether the countries have existing labor and social laws
protecting the rights of workers, including migrant
workers
Unless processed through the POEA, the State
has no effective means of assessing the suitability of the
foreign laws to our migrant workers. Thus, an overseas
employment contract that was not scrutinized by the
POEA definitely cannot be invoked as it is an
unexamined foreign law.
In other words, lacking any one of the four
requisites would invalidate the application of the foreign
law, and the Philippine law shall govern the overseas
employment contract.
MANILA BAY CLUB CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, MODESTA SABENIANO and
MIRIAM SABENIANO, JUDITH SABENIANO, JOY DENNIS
SABENIANO, et. al., respondents.
FACTS:
A ten-year lease contract, commencing on March 4,
1988 and set to expire on March 4, 1998, over the subject
building, was executed by and between the private
respondents Sabenianos as owners-lessors, and
petitioner Manila Bay Club Corporation as lessee. The
lease agreement, however, was short-lived because
private respondents, unilaterally terminated the lease on
the following grounds:
1. Failure on the part of the LESSEE to insure the
building
2. For unpaid accumulated rentals in arrears and
to issue all the postdated checks agreed upon
3. For failure on the part of the LESSEE to pay the
fees, taxes and other assessments on the improvements
Feeling aggrieved by the premature termination of the
lease, petitioner filed a complaint with the Makati RTC
for "Specific Performance with Prayer for Preliminary
Injunction and Damages" against private respondents
on the ground that the cancellation of the lease
contract was arbitrary and capricious, for petitioner did
not violate any of its provisions.
The RTC held that petitioner was not in default nor in
arrears in payment of rentals. However, it found that
petitioner violated the "insurance clause" of the
contract. Consequently, RTC dismissed the complaint,
declared the lease contract terminated and ordered
petitioner to immediately return possession of the leased
premises to private respondents. Petitioner appealed to
respondent Court of Appeals which affirmed with
modification RTC’s decision.
ISSUE:
Whether or not the question involve is a question of law
or a question of fact.
HELD:
Petitioner on the other hand strongly maintains that it is
a question of law reviewable and reversible by the
Court.
On this particular point, the court agrees with petitioner.
What a question of law or a question of fact is has been
consistently defined by the Court in this wise:
For a question to be one of law it must involve no
examination of the probative value of the evidence
presented by the litigants or any of them. And the
distinction is well-known: There is a question of law in a
given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a
question of fact when the doubt arises as to the truth or
the falsehood of alleged facts. 8
Here, petitioner has made it very clear that it is not
disputing respondent Court of Appeals' and the trial
court's findings vis-a-vis its failure to designate private
respondents as beneficiaries in the insurance policies it
procured on the leased building at the inception of the
lease contract. And from the arguments raised herein by
petitioner, this Court is indeed not called upon to
reexamine and appreciate anew any evidence
presented below, and thereafter arrive at a contrary
finding. What petitioner is challenging is solely the
respondent Court of Appeals' conclusion drawn from
these undisputed facts. This Court in the early case of
"Cunanan vs. Lazatin" (74 Phil. 719) has ruled that:
There is no question of fact here because the facts are
admittedly proven. Whether or not the conclusion drawn
by the Court of Appeals from those facts is correct, is a
question of law which this Court is authorized to pass
upon.
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY
VS. CA
G.R. NO. 116940
JUNE 11, 1997
FACTS:
1. On 6 July 1983 Coca-Cola Bottlers Philippines,
Inc. (Coca-Cola Bottlers), loaded on board "MV Asilda,"
a vessel owned and operated by respondent Felman
Shipping Lines (FELMAN), 7,500 cases of 1-liter Coca-
Cola softdrink bottles to be transported from
Zamboanga City to Cebu City for consignee Coca-Cola
Bottlers Philippines, Inc., Cebu. The shipment was insured
with petitioner Philippine American General Insurance
Co., Inc. (PHILAMGEN)
2. In a joint statement, the Captain as well as the
chief mate of the vessel confirmed that the weather was
fine when "MV Asilda" left the port of Zamboanga at 8
p.m. on 6 July. The ship captain stated that around 4
a.m. of 7 July 1983 he was awakened by the officer on
duty to inform him that the vessel had hit a floating log.
3. At that time he noticed that the weather had
deteriorated with strong southeast winds inducing big
waves. After 30 minutes, he observed that the vessel was
listing slightly to starboard and would not correct itself
despite the heavy rolling and pitching. He then ordered
his crew to shift the cargo from starboard to portside until
the vessel was balanced. At about 7 a.m., the master of
the vessel stopped the engine because the vessel was
listing dangerously to portside. He ordered his crew to
shift the cargo back to starboard (right). The shifting of
cargo took about an hour after which he rang the
engine room to resume full speed.
4. At around 8:45 a.m., the vessel suddenly listed to
portside and before the captain could decide on his
next move, some of the cargo on deck were thrown
overboard and seawater entered the engine room and
cargo holds of the vessel. At that instance, the master of
the vessel ordered his crew to abandon ship.
5. Shortly thereafter, "MV Asilda" capsized and
sank in the waters of Zamboanga del Norte bringing
15
down her entire cargo with her including the subject
7,500 cases of 1-liter Coca-Cola softdrink bottles.
6. The Ship Captain ascribed the sinking to the
entry of seawater through a hole in the hull caused by
the vessel's collision with a partially submerged log.
7. On 15 July 1983 the consignee Coca-Cola
Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages. FELMAN
denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of
P755,250.00.
8. Claiming its right of subrogation PHILAMGEN
sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29
November 1983 PHILAMGEN sued the shipowner for sum
of money and damages, alleging that the total loss of
cargo was due to the vessel’s unseaworthiness as she
was put to sea in an unstable condition. FELMAN, on the
other hand, filed a motion to dismiss contending that
there was no right of subrogation in favor of PHILAMGEN
since it had abandoned all its rights, interests and
ownership over the vessel together with her freight and
appurtenances for the purpose of limiting and
extinguishing its liability under Art. 587 of the Code of
Commerce.
9. The RTC dismissed PHILAMGEN’s complaint and
appealed to the CA which remanded the case and
denied its motion for reconsideration. The RTC then ruled
that the vessel was seaworthy and even if assumed
unseaworthy, PHILAMGEN still could not recover from
FELMAN since Coca-Cola Bottlers had breached its
implied warranty on the vessel’s seaworthiness.
10. On appeal, the CA ruled that the vessel was
unseaworthy for being top-heavy as 2,500 cases of
Coca-Cola softdrinks bottles were improperly stowed on
deck. Even though the vessel possessed the necessary
Coast Guard certification indicating its seaworthiness
with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. However, it denied
the money claim of PHILAMGEN because of the implied
breach of warranty of seaworthiness by Coca-Cola
Bottlers. Furthermore, the filing of notice of
abandonment had absolved FELMAN from liability under
the limited liability rule.
ISSUES:
1. Whether MV Asilda was seaworthy when it left
port of Zamboanga
2. Whether the limited liability under Article 587 of
the Code of Commerce should apply
RULING:
1. NO. The Supreme Court subscribe to the findings
of the Elite Adjusters and the Court of Appeals that the
proximate cause of the sinking of the MV Asilda was its
being top-heavy. As according to the report submitted
by the Elite Adjusters, while the vessel may not have
been overloaded, the distribution or stowage of the
cargo on board was done in such a manner that the
vessel was in top-heavy condition at the time of its
departure which rendered it unstable and unseaworthy
for that particular voyage. Furthermore, MV Asilda was
designed as a fishing vessel and was not designed to
carry a substantial amount or quantity of cargo in deck
and from the moment it was utilized to load heavy
cargo, the vessel was rendered unseaworthy for the
purpose of carrying the type of cargo and that the
capsizing and sinking of the vessel was bound to happen
and an inevitable occurrence.
2. NO. The Supreme Court held that Article 587 of
the Code of Commerce is not applicable. The ship
agent is liable for the negligent acts of the captain in the
care of the goods loaded on the vessel. This liability,
although can be limited through abandonment of the
vessel, its equipment and freightage, as provided in Art.
587, there exceptional circumstances wherein the ship
agent could still be held answerable, as where the loss
or injury was due to the fault of the ship owner and the
captain. The international rule is to the effect that the
right of abandonment of vessels, as a legal limitation of
a ship owner's liability, does not apply to cases where the
injury or average was occasioned by the ship owner's
own fault. It must be stressed at this point that Art. 587
speaks only of situations where the fault or negligence is
committed solely by the captain. Where the ship owner
is likewise to be blamed, Art. 587 will not apply, and such
situation will be covered by the provisions of the Civil
Code on common carrier. Under Art 1733 of the Civil
Code, "(c)ommon carriers, from the nature of their
business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported
by them, according to all the circumstances of each
case . . ." In the event of loss of goods, common carriers
are presumed to have acted negligently. FELMAN, the
ship owner, was not able to rebut this presumptio
TEVES V. PEOPLE
G.R. No. 188775, [August 24, 2011]
FACTS:
On 26 November 1992, a marriage was
solemnized between Cenon Teves (Cenon) and Thelma
Jaime-Teves (Thelma). After the marriage, Thelma left to
work abroad and would only come home to the
Philippines for vacations. In 2002, Thelma was informed
that her husband had contracted marriage with a
certain Edita Calderon. Thelma then went to the
National Statistics Office and secured a copy of the
Certificate of Marriage indicating that her husband
(Cenon) and Edita contracted marriage on 10
December 2001 in Bulacan. In 2006, the uncle of Thelma,
filed a complaint accusing petitioner Cenon of bigamy.
Petitioner was charged with bigamy under Article 349 of
the RPC on June 2006. However, during the pendency
of the criminal case for bigamy, the RTC of Caloocan
City, rendered a decision dated May 2006 (one month
before the case for bigamy was decided) declaring the
marriage of petitioner and Thelma null and void on the
ground that Thelma is physically incapacitated to
comply with her essential marital obligations pursuant to
Article 36, Family Code. Said decision became final by a
Certification of Finality issued on 27 June 2006. Petitioner
Cenon appealed before the CA contending that the
court a quo erred in not ruling that his criminal liability
had already been extinguished. Petitioner claims that
since his previous marriage was declared null and void,
“there is in effect no marriage at all, and thus, there is no
bigamy to speak of.”
Petitioner further contends that the ruling of the
Court in Mercado v. Tan is inapplicable in his case
because in the Mercado case the prosecution for
bigamy was initiated before the declaration of nullity of
marriage was filed. Petitioner says that in his case, the first
marriage had already been legally dissolved at the time
the bigamy case was filed in court.
ISSUE:
Whether petitioner may be held guilty for the crime of
Bigamy (Article 346, RPC) despite the judicial
declaration that his previous marriage with Thema is null
and void.
HELD:
YES. The court held that it does not matter
whether the case for declaration of nullity was filed
before the case for bigamy was instituted, for as long as
the offender contracted a subsequent marriage while
his previous marriage is subsisting thereby not being able
16
to secure a Declaration of Nullity of the First marriage AT
THE TIME HE CONTRACTED THE SECOND MARRIAGE.
RATIO:
The instant case has all the elements of the
crimeof bigamy under Art. 346 of the RPC. Thus, the CA
was correct in affirming the conviction of petitioner.
Petitioner was legally married to Thelma on 26 November
1992. He contracted a second or subsequent marriage
with Edita on 10 December 2001. At the time of his
second marriage with Edita, his marriage with Thelma
was legally subsisting. It is noted that the finality of the
decision declaring the nullity of his first marriage with
Thelma was only on 27 June 2006 or about five (5) years
after his second marriage to Edita. Finally, the second or
subsequent marriage of petitioner with Edita has all the
essential requisites for validity. Petitioner has in fact not
disputed the validity of such subsequent marriage.
His contention that he cannot be charged with
bigamy in view of the declaration of nullity of his first
marriage is bereft of merit. A declaration of the absolute
nullity of a marriage is now explicitly required either as a
cause of action or a ground for defense. Where the
absolute nullity of a previous marriage is sought to be
invoked for purposes of contracting a second marriage,
the sole basis acceptable in law for said projected
marriage to be free from legal infirmity is a final judgment
declaring the previous marriage void. Parties to a
marriage should not be allowed to assume that their
marriage is void even if such be the fact but must first
secure a judicial declaration of the nullity of their
marriage before they can be allowed to marry again.
With the judicial declaration of the nullity of his or her
marriage, the person who marries again cannot be
charged with bigamy. A judicial declaration of nullity is
required before a valid subsequent marriage can be
contracted; or else, what transpires is a bigamous
marriage, reprehensible and immoral.
If petitioner’s contention would be allowed, a
person who commits bigamy can simply evade
prosecution by immediately filing a petition for the
declaration of nullity of his earlier marriage and hope
that a favorable decision is rendered therein before
anyone institutes a complaint against him. We note that
in petitioner’s case the complaint was filed before the
first marriage was declared a nullity. It was only the filing
of the Information that was overtaken by the declaration
of nullity of his first marriage. Following petitioner’s
argument, even assuming that a complaint has been
instituted, such as in this case, the offender can still
escape liability provided that a decision nullifying his
earlier marriage precedes the filing of the Information in
court. Such cannot be allowed.
DOCTRINE:
Where the absolute nullity of a previous
marriage is sought to be invoked for purposes of
contracting a second marriage, the sole basis
acceptable in law for said projected marriage to be free
from legal infirmity is a final judgment declaring the
previous marriage void.
A judicial declaration of nullity is required before
a valid subsequent marriage can be contracted; or else,
what transpires is a bigamous marriage, reprehensible
and immoral.
In fact, the requirement for a declaration of
absolute nullity of a marriage is also for the protection of
the spouse who, believing that his or her marriage is
illegal and void, marries again. With the judicial
declaration of the nullity of his or her marriage, the
person who marries again cannot be charged with
bigamy.
 De Leon v CA
GR No. 80965
June 6, 1990
FREEDOM OF STIPULATION OF CONTRACTS
FACTS:
(1) On October 18, 1969, private respondent Jose
Vicente De Leon and petitioner Sylvia Lichauco De Leon
were united in wedlock before the Municipal Mayor of
Binangonan, Rizal. On August 28, 1971, a child named
Susana L. De Leon was born from this union.
(2) Sometime in October, 1972, a de facto separation
between the spouses occured due to irreconcilable
marital differences, with Sylvia leaving the conjugal
home.
(3) Sometime in March, 1973, Sylvia went to the United
States where she obtained American citizenship.
(4) On November 23, 1973, Sylvia filed with the Superior
Court of California, County of San Francisco, a petition
for dissolution of marriage against Jose Vicente. In the
said divorce proceedings, Sylvia also filed claims for
support and distribution of properties. It appears,
however, that since Jose Vicente was then a Philippine
resident and did not have any assets in the United States,
Sylvia chose to hold in abeyance the divorce
proceedings, and in the meantime, concentrated her
efforts to obtain some sort of property settlements with
Jose Vicente in the Philippines.
(5) On March 16, 1977, Sylvia succeeded in entering into
a Letter-Agreement with her mother-in-law, private
respondent Macaria De Leon,
(6) On the same date, Macaria made cash payments to
Sylvia in the amount of P100,000 and US$35,000.00 or
P280,000.00, in compliance with her obligations as
stipulated in the aforestated Letter-Agreement.
(7) On March 30, 1977, Sylvia and Jose Vicente filed
before the then Court of First Instance of Rizal a joint
petition for judicial approval of dissolution of their
conjugal partnership
Applicable Laws:
(1) Article 1306. The contracting parties may establish
such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public
policy. (1255a)
(2) Article 1409. The following contracts are inexistent
and void from the beginning:
(1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time
of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived.
(3) Article 52. Marriage is not a mere contract but an
inviolable social institution. Its nature, consequences and
incidents are governed by law and not subject to
stipulation, except that the marriage settlements may to
a certain extent fix the property relations during the
marriage. (n)
(4) Article 191. The husband or the wife may ask for the
separation of property, and it shall be decreed when the
17
spouse of the petitioner has been sentenced to a
penalty which carries with it civil interdiction, or has been
declared absent, or when legal separation has been
granted.
In case of abuse of powers of administration of
the conjugal partnership property by the husband, or in
case of abandonment by the husband, separation of
property may also be ordered by the court, according
to the provisions of articles 167 and 178, No. 3.
In all these cases, it is sufficient to present the
final judgment which has been entered against the
guilty or absent spouse. (1433a) The husband and the
wife may agree upon the dissolution of the conjugal
partnership during the marriage, subject to judicial
approval. All the creditors of the husband and of the
wife, as we l as of the conjugal partnership shall be
notified of any petition for judicial approval or the
voluntary dissolution of the conjugal partnership, so that
any such creditors may appear at the hearing to
safeguard his interests. Upon approval of the petition for
dissolution of the conjugal partnership, the court shall
take such measures as may protect the creditors and
other third persons.
After dissolution of the conjugal partnership, the
provisions of articles 214 and 215 shall apply. The
provisions of this Code concerning the effect of partition
stated in articles 498 to 501 shall be applicable. (1433a)
(5) Article 221.The following shall be void and of no
effect:
(1) Any contract for personal separation between
husband and wife;
(2) Every extra-judicial agreement, during marriage, for
the dissolution of the conjugal partnership of gains or of
the absolute community of property between husband
and wife;
(3) Every collusion to obtain a decree of legal
separation, or of annulment of marriage;
(4) Any simulated alienation of property with intent to
deprive the compulsory heirs of their legitime.
(6) Article 1330. A contract where consent is given
through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)
(7) Article 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions
which have principally moved one or both parties to
enter into the contract. Mistake as to the identity or
qualifications of one of the parties will vitiate consent
only when such identity or qualifications have been the
principal cause of the contract.
A simple mistake of account shall give rise to its
correction. (1266a)
(8) Article 1414. When money is paid or property
delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has
been accomplished, or before any damage has been
caused to a third person. In such case, the courts may, if
the public interest will thus be subserved, allow the party
repudiating the contract to recover the money or
property.
(9) Article 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity. (1288)
(10) Article 1335. There is violence when in order to wrest
consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties
is compelled by a reasonable and well-grounded fear of
an imminent and grave evil upon his person or property,
or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex
and condition of the person shall be borne in mind.
A threat to enforce one's claim through competent
authority, if t he claim is just or legal, does not vitiate
consent. (1267a)
RTC:
WHEREFORE, it is hereby declared that the conjugal
partnership of the Spouses is DISSOLVED
ISSUE:
Whether or not the Letter-Agreement is valid
HELD:
The letter-agreement is invalid.
The cause or consideration for the intervenor
Macaria De Leon in having executed Exhibits 'E' to 'E-2'
was the termination of the marital relationship between
her son Jose Vicente De Leon and Sylvia Lichauco de
Leon.
Intervenor's undertaking under Exhibit 'E'
premised on the termination of marital relationship is not
only contrary to law but contrary to Filipino morals and
public Policy. As such, any agreement or obligations
based on such unlawful consideration and which is
contrary to public policy should be deemed null and
void.
... the agreement nevertheless is void because it
contravenes the following provisions of the Civil Code:
Art. 221. The following shall be void and of no effect:
(1) Any contract for personal separation between
husband and wife;
(2) Every extra-judicial agreement, during marriage, for
the dissolution of the conjugal partnership of gains or of
the absolute community of property between husband
and wife;
Article 1414 of the Civil Code, which is an
exception to the pari delicto rule, is the proper law to be
applied. It provides:
When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the
parties before the purpose has been accomplished, or
before any damage has been caused to a third person.
In such case, the courts may, if the public interest wig
thus be subserved, allow the party repudiating the
contract to recover the money or property.
Since the Letter-Agreement was repudiated before the
purpose has been accomplished and to adhere to the
pari delicto rule in this case is to put a premium to the
circumvention of the laws, positive relief should be
granted to Macaria. Justice would be served by
allowing her to be placed in the position in which she
was before the transaction was entered into.
OTHER NOTES:
(1) Applying the foregoing to the present case, the claim
of Macaria that Sylvia threatened her to bring Jose
Vicente to court for support, to scandalize their family by
baseless suits and that Sylvia would pardon Jose Vicente
for possible crimes of adultery and/or concubinage
subject to the transfer of certain properties to her, is
obviously not the intimidation referred to by law.
18
In order that intimidation may vitiate consent
and render the contract invalid, the following requisites
must concur:
(1) that the intimidation must be the determining cause
of the contract, or must have caused the consent to be
given;
(2) that the threatened act be unjust or unlawful;
(3) that the threat be real and serious, there being an
evident disproportion between the evil and the
resistance which all men can offer, leading to the choice
of the contract as the lesser evil; and
(4) that it produces a reasonable and well-grounded
fear from the fact that the person from whom it comes
has the necessary means or ability to inflict the
threatened injury.
1308 MUTUALITY OF CONTRACTS
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM vs. CA and BENITO VILLAVICENCIO DY
THE CASE:
CA having affirmed in toto on June 30, 1988 in CA-G.R. SP No.
13925, the decision of the RTC of Manila, Branch XLVI in Civil
Case No. 87-42719, entitled "Francisco Lao Lim vs. Benito
Villavicencio Dy," petitioner seeks the reversal of such
affirmance in the instant petition.
FACTS:
The records show that Villavicencio entered into a contract of
lease with petitioner for a period of three (3) years, that is, from
1976 to 1979. After the stipulated term expired, Villavicencio
refused to vacate the premises, hence, petitioner filed an
ejectment suit against the former in the City Court of Manila,
docketed therein as Civil Case No. 051063-CV.
The case was terminated by a judicially approved compromise
agreement of the parties providing in part:
“3. That the term of the lease shall be renewed every 3years
retroacting from October 1979 to October 1982; after which the
abovenamed rental shall be raised automatically by 20% every
three years for as long as defendant needed the premises and
can meet and pay the said increases, the defendant to give
notice of his intent to renew sixty (60) days before the expiration
of the term;”
By reason of said compromise agreement the lease continued
from 1979 to 1982, then from 1982 to 1985. On April 17, 1985,
petitioner advised Villavicencio that he would no longer renew
the contract effective October, 1985.
However, on August 5, 1985, Villavicencio informed petitioner in
writing of his intention to renew the contract of lease for another
term, commencing November, 1985 to October, 1988. In reply
to said letter, petitioner advised Villavicencio that he did not
agree to a renewal of the lease contract upon its expiration in
October, 1985.
On January 15, 1986, because of Villavicencio's refusal to
vacate the premises, petitioner filed another ejectment suit, this
time with the Metropolitan Trial Court of Manila. In its decision of
September 24, 1987, said court dismissed the complaint on the
grounds that:
(1) the lease contract has not expired, being a
continuous one the period whereof depended upon the
lessee's need for the premises and his ability to pay the rents;
and
(2) the compromise agreement entered into in the
aforesaid Civil Case No. 051063-CV constitutes res judicata to
the case before it.
Petitioner appealed to the RTC of Manila which, in its decision
of January 28, 1988, affirmed the decision of the lower court.
CA affirmed RTC and held that:
(1) the stipulation in the compromise agreement which,
in its formulation, allows the lessee to stay on the premises as
long as he needs it and can pay rents is valid, being a resolutory
condition and, therefore, beyond the ambit of Article 1308 of
the Civil Code; and
(2) that a compromise has the effect of res judicata.
ISSUE:
Was the stipulation in the compromise agreement which allows
the lessee to stay on the premises as long as he needs it and
can pay rents is valid?
RULING:
No. The decision of respondent CA is REVERSED and SET ASIDE.
HELD:
The disputed stipulation "for as long as the defendant needed
the premises and can meet and pay said increases" is a purely
potestative condition because it leaves the effectivity and
enjoyment of leasehold rights to the sole and exclusive will of
the lessee.
It is likewise a suspensive condition because the renewal of the
lease, which gives rise to a new lease, depends upon said
condition. It should be noted that a renewal constitutes a new
contract of lease although with the same terms and conditions
as those in the expired lease.
It should also not be overlooked that said condition is not
resolutory in nature because it is not a condition that terminates
the lease contract. The lease contract is for a definite period of
three (3) years upon the expiration of which the lease
automatically terminates.
The invalidity of a condition in a lease contract similar to the one
at bar has been resolved in Encarnacion vs. Baldomar, et al.
where we ruled that in an action for ejectment, the defense
interposed by the lessees that the contract of lease authorized
them to continue occupying the premises as long as they paid
the rents is untenable, because it would leave to the lessees the
sole power to determine whether the lease should continue or
not.
As stated therein, "(i)f this defense were to be allowed, so long
as defendants elected to continue the lease by continuing the
payment of the rentals, the owner would never be able to
discontinue it; conversely, although the owner should desire the
lease to continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the
simple expedient of stopping payment of the rentals. This, of
course, is prohibited by the aforesaid article of the Civil Code.
The continuance, effectivity and fulfillment of a contract of
lease cannot be made to depend exclusively upon the free
and uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner
of any say in the matter. Mutuality does not obtain in such a
contract of lease and no equality exists between the lessor and
the lessee since the life of the contract is dictated solely by the
lessee.
The interpretation made by respondent court cannot,
therefore, be upheld. The compromise agreement, read and
interpreted in its entirety, is actually to the effect that the last
portion thereof, which gives the Villavicencio sixty (60) days
before the expiration of the term the right to give notice of his
intent to renew, is subject to the first portion of said paragraph
that "the term of the lease shall be renewed every three (3)
years," thereby requiring the mutual agreement of the parties.
The use of the word "renew" and the designation of the period
of three (3) years clearly confirm that the contract of lease is
limited to a specific period and that it is not a continuing lease.
The stipulation provides for a renewal of the lease every three
(3) years; there could not be a renewal if said lease did not
expire, otherwise there is nothing to renew.
The contract of lease should be and is hereby construed as
providing for a definite period of three (3) years and that the
automatic increase of the rentals by twenty percent (20%) will
take effect only if the parties decide to renew the lease. A
contrary interpretation will result in a situation where the
continuation and effectivity of the contract will depend only
upon the will of the lessee, in violation of Article 1308 of the Civil
Code and the aforesaid doctrine in Encarnacion.
19
Moreover, perpetual leases are not favored in law, nor are
covenants for continued renewals tending to create a
perpetuity, and the rule of construction is well settled that a
covenant for renewal or for an additional term should not be
held to create a right to repeated grants in perpetuity, unless
by plain and unambiguous terms the parties have expressed
such intention.
A lease will not be construed to create a right to perpetual
renewals unless the language employed indicates dearly and
unambiguously that it was the intention and purpose of the
parties to do so. A portion in a lease giving the lessee and his
assignee the right to perpetual renewals is not favored by the
courts, and a lease will be construed as not making such a
provision unless it does so clearly.
As we have further emphasized:
It is also important to bear in mind that in a reciprocal contract
like a lease, the period of the lease must be deemed to have
been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the
benefit of the lessee or lessor alone. We are not aware of any
presumption in law that the term of a lease is designed for the
benefit of the lessee alone. . .
In addition, even assuming that the clause "for as long
as the defendant needed the premises and can meet and pay,
said increases" gives Villavicencio an option to renew the lease,
the same will be construed as providing for but one renewal or
extension and, therefore, was satisfied when the lease was
renewed in 1982 for another three (3) years.
A general covenant to renew is satisfied by one
renewal and will not be construed to confer the right to more
than one renewal unless provision is clearly and expressly made
for further renewals. 16Leases which may have been intended
to be renewable in perpetuity will nevertheless be construed as
importing but one renewal if there is any uncertainty in that
regard.
The case of Buccat vs. Dispo et al., relied upon by
respondent court, to support its holding that respondent lessee
can legally stay on the premises for as long as he needs it and
can pay the rents, is not in point. In said case, the lease contract
provides for an indefinite period since it merely stipulates "(t)hat
the lease contract shall remain in full force and effect as long
as the land will serve the purpose for which it is intended as a
school site of the National Business Institute, but the rentals now
stipulated shall be subject to review every after ten (10) years
by mutual agreement of the parties." This is in clear contrast to
the case at bar wherein, to repeat, the lease is fixed at a period
of three (3) years although subject to renewal upon agreement
of the parties, and the clause "for as long as defendant needs
the premises and can meet and pay the rents" is not an
independent stipulation but is controlled by said fixed term and
the option for renewal upon agreement of both parties.
Note: I did not include the 2nd issue anymore regarding res
judicata. . .
WHEREFORE, the decision of respondent Court of Appeals is
REVERSED and SET ASIDE. Villavicencio is hereby ordered to
immediately vacate and return the possession of the leased
premises subject of the present action to petitioner and to pay
the monthly rentals due thereon in accordance with the
compromise agreement until he shall have actually vacated
the same. This judgment is immediately executory. SO
ORDERED.
JESPAJO REALTY CORP VS. CA
FACTS:
The controversy springs from an apartment
building owned by the Jespajo Realty Corp. The said
corporation lead by its President Jesus Uy executed a
contract of lease with herein respondents Tan Te and Co
Tong. Pursuant to the said contract, Tan Te occupied rm.
no. 217 of the said building at a monthly rate of P814
while Tong occupied the penthouse at a monthly rate of
P917.
The contract of lease explicitly stipulates: that
the lessees may occupy the said premises as long as that
payment for monthly rental is updated. The lessees may
terminate the contract anytime provided that they give
a 60 day prior written notice.
 The lessor may terminate the contract anytime
should the lessees commit any violation of the terms of
agreement.
For 5 years, the lessees were able to pay petitioner-
corporation religiously. However, as of Jan. 1990, the
petitioner sent them a letter asking for an increase in the
monthly rent. From the original price agreed (P800-900),
it became 3,500 for each of them,
In reply to the said proposal, the respondents
through their counsel, sent a letter of opposition
to the said proposal. Due to the opposition, the
petitioner-corporation, filed an ejectment case
against the respondents, also ordering them to
pay P7,000 for the monthly rental on Feb.-March
1990.
Respondents gave extra efforts to pay the petitioner
according to the original price agreed in the contract.
However, it refused.
May 1990 - respondent-lessees take refuge to
the MTC, to consign their payment for the monthly
rentals.
Now. 1990 - MTC dismissed the ejectment case
filed by the petitioner.
Feb. 1991 - the judge decreed an order allowing
herein respondents to deposit with the city treasurer of
MLA the respective rentals of respondents for 13 months.
(from the date of the filing of the consignment, Feb 1990-
Jan 1991).
jespajo appealed to the RTC, which became in favor of
the said corporation.
CA reversed the decision of the RTC. Hence, this petition.
ISSUE:
Whether or not the contention of the petitioner-
corporation that the stipulation in a contract: The lease
period shall subsist for an indefinite period provided the
lessess is up-to-date in the payment of his monthly rentals
is contrary to Art. 1308 of the civil code.
RULING:
The fact that such option is binding only on the
lessor and can be exercised only by the lessee does not
render it void for lack of mutuality. After all, the lessor is
free to give or not to give the option to the lessee. And
while the lessee has a right to elect whether to continue
with the lease or not, once he exercises his option to
continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their
rights and obligations become mutually fixed, and the
lessee is entitled to retain possession of the property for
the duration of the new lease, and the lessor may hold
him liable for the rent therefor. The lessee cannot
thereafter escape liability even if he should subsequently
decide to abandon the premises. Mutuality obtains in
such a contract and equality exists between the lessor
and the lessee since they remain with the same faculties
in respect to fulfillment.
As correctly ruled by the MTC in its decision, the
grant of benefit of the period in favor of the lessee was
given in exchange for no less than an automatic 20%
yearly increase in monthly rentals.
Thus, the present petition is DENIED, the ruling of the CA
is upheld.
ALLIED BANKING CORP. V. CA (JAN - DEC 2006)
G.R. NO. 125851 JULY 11, 2006
LESSONS APPLICABLE: LIABILITIES OF THE PARTIES (NEGOTIABLE
INSTRUMENTS LAW)
FACTS:
• January 6, 1981: Allied Bank (Allied) purchased Export
Bill of $20,085 from G.G. Sportswear Mfg. Corporation (GGS)
o The bill, drawn under a letter of credit covered Men's
Valvoline Training Suit that was in transit to West Germany
20
o The export bill was issued by Chekiang First Bank Ltd.,
Hongkong.
o With the purchase of the bill, ALLIED credited GGS the
peso equivalent of the bill amounting to P151,474.52
o Nari Gidwani and Alcron International Ltd. (Alcron)
executed their respective Letters of Guaranty, holding
themselves liable on the export bill if it should be dishonored or
retired by the drawee for any reason.
o spouses Leon and Leticia de Villa and Nari Gidwani
also executed a Continuing Guaranty/Comprehensive Surety
(surety), guaranteeing payment of any and all such credit
accommodations which ALLIED may extend to GGS
• When ALLIED negotiated the export bill to Chekiang,
payment was refused due to some material discrepancies in
the documents submitted by GGS relative to the exportation
covered by the letter of credit.
• ALLIED demanded payment
o GGS and Nari Gidwani: signed blank forms of the
Letters of Guaranty and the Surety, and the blanks were only
filled up by ALLIED after they had affixed their signatures. They
also added that the documents did not cover the transaction
involving the subject export bill.
o spouses de Villa: not aware of the existence of the
export bill; they signed blank forms of the surety; and averred
that the guaranty was not meant to secure the export bill
o Alcron: foreign corporation doing business in the
Philippines, its branch in the Philippines is merely a liaison office;
neither its liaison office in the Philippines nor its then
representative, Hans-Joachim Schloer, had the authority to
issue Letters of Guaranty for and in behalf of local entities and
persons
• RTC: in favor of Allied
• CA: modified holding GGS liable to reimburse Allied,
but it exonerated the guarantors from their liabilities under the
Letters of Guaranty
ISSUE:
W/N Gidwani, Alcron and Spouses Villa can be held jointly and
severally liable becuase of their capacity as guarantors and
surety in the absence of protest on the bill in accordance with
Section 152 of the Negotiable Instruments Law?
HELD:
Yes. CA modified. Nari Gidwani, and Spouses Leon and Leticia
de Villa are jointly and severally liable together with G.G.
Sportswear
Art. 2047. By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
• If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the contract is called a
suretyship.
• Section 152 of the Negotiable Instruments Law
pertaining to indorsers, relied on by respondents, is not pertinent
to this case.
o There are well-defined distinctions between the
contract of an indorser and that of a guarantor/surety of a
commercial paper, which is what is involved in this case.
o The contract of indorsement is primarily that of
transfer, while the contract of guaranty is that of personal
security
o The liability of a guarantor/surety is broader than that
of an indorser.
o Unless the bill is promptly presented for payment at
maturity and due notice of dishonor given to the indorser within
a reasonable time, he will be discharged from liability thereon.
On the other hand, except where required by the provisions of
the contract of suretyship, a demand or notice of default is not
required to fix the surety's liability.
Therefore, no protest on the export bill is necessary to
charge all the respondents jointly and severally liable
• having affixed their consenting signatures in several
documents executed at different times, it is safe to presume
that they had full knowledge of its terms and conditions, hence,
they are precluded from asserting ignorance of the legal
effects of the undertaking they assumed thereunder
PHILIPPINE SAVINGS BANK V. CASTILLO
G.R. NO. 193178, MAY 30, 2011
FACTS
- Spouses Castillo and Spouses Capati are lot owners in
Tondo, Manila
- Obtained a loan secured by mortgage from Phil
Savings Bank (2.5M)
o Solidarily bound
o 17% p.a. interest
o Rate subject to adjustment every 90 days
- 1997-1999 – interest was adjusted from 15.5-29%
- Notices were given in writing. Respondents did not
confirm or formally question.
- However, Castillo sent numerous letters requesting for
reduction of interest rates, which were denied
- 2000- extrajudicial foreclosure sale, and winner and
only bidder was PSB
- petitioner no longer paid the said amount but rather
credited it to the loan amortizations and arrears, past
due interest, penalty
charges, attorney's fees, all legal fees and expense
o Failed to redeem in the 1-year period
- Respondents filed case for
Reformation of Instruments,
Declaration of Nullity of Notarial Foreclosure Proceedi
ngs and Certificate of
Sale, Cancellation of Annotations
- RTC:
o The increases are unreasonable, and
arbitrary
o Refund plaintiffs amount in excess of 17%
p.a.
o Foreclosure void ab initio
o
o
Damages to PSB
In MR, increased rate to 24%
- CA:
o The increases are unreasonable, and
arbitrary
o Refund plaintiffs amount in excess of 17%
p.a
o Foreclosure valid
o Reduced damages to PSB
RATIO
1.
- The unilateral determination and imposition of the inc
reased rates is violative of
the principle of mutuality of contracts under Article 1
308 of the Civil Code,
- A perusal
of the Promissory Note will readily show that the incre
ase or decrease of
- interest rates hinges solely on the discretion of petitio
ner.
- It does not require
the conformity of the maker before a new interest rat
e could be enforced.
- Any
contract which appears to be heavily weighed in fav
or of one of the parties so
as to lead to an unconscionable result, thus partakin
g of the nature of a
contract of adhesion, is void. Any stipulation regardi
ng the validity or
compliance of the contract left solely to the will of on
e of the parties is likewise invalid
2.
- Petitioner contends that respondents acquiesced to t
he imposition of the
modified interest rates; thus, there was no violation of
the principle of mutuality of contracts.
o Conformity letter signed by them does not p
ertain to the
modification of the interest rates, but rather
21
only to the amendment of the
interest rate review period from 90 days to 3
0 days.
- Moreover, respondents' assent to the modifications in
the interest rates cannot
be implied from their lack of response to the memos s
ent by petitioner,
informing them of the amendments.
o The said memos were in the nature of a
proposal to change the contract with respe
ct to one of its significant
components, i.e., the interest rates.
o As we have held, no one receiving a
proposal to change a contract is obliged to
answer the proposal
- We likewise disagree with petitioner's assertion that re
spondents recognized
the legality of the imposed interest rates through the l
etters requesting for the reduction of the rates.
o The request for reduction of the interest doe
s not translate to consent thereto.
- Basic is the rule that there can be no contract in its tr
ue sense without the
mutual assent of the parties. If this consent is absent o
n the part of one who
contracts, the act has no more efficacy than if it had
been done under duress or
by a person of unsound mind.
o 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, the i
nterest rate is undeniably
always a vital component
 Any change must be mutually agr
eed upon, otherwise, it produces n
o binding effect.
HELD: Affirmed. Damages deleted
1311 CONTRATCS TAKE EFFECT
ONLY BETWEEN THE PARTIES, THEIR
ASSIG, AND HEIRS
UY V. COURT OF APPEALS
G.R. NO. 120465, 09 SEPTEMBER 1999
FACTS:
Petitioners Uy and Roxas are agents authorized to sell eight
parcels of land by the owners thereof. By virtue of such
authority, petitioners offered to sell the lands located in Benguet
to respondent NHA to be utilized and developed as a housing
project. On February 14, 1989, the NHA Board approved the
acquisition of said lands, at the cost of P23.87M, pursuant to
which the parties executed a series of Deeds of Absolute Sale
covering the subject lands. Of the eight parcels, however, only
five were paid for by the NHA because of the report it received
from the Land Geosciences Bureau of the DENR that the
remaining area is located at an active landslide area and
therefore, not suitable for development into a housing project.
In 1991, the NHA cancelled the sale of the 3 parcels of land and
subsequently offered the amount of P1.225 million to the
landowners as daños perjuicios. On 9 March 1992, petitioners
filed before the QC RTC a Complaint for Damages.
The RTC rendered a decision declaring the cancellation of the
contract to be justified. The trial court nevertheless awarded
damages to plaintiffs in the same amount offered by NHA to
petitioners as damages. Upon appeal by petitioners, the CA
held that since there was "sufficient justifiable basis" in
cancelling the sale, "it saw no reason" for the award of
damages. Hence, this petition.
ISSUES:
(1) Was there a legal basis for the rescission of the sale of the 3
parcels of land? And granting arguendo that NHA has legal
basis to rescind, does the petitioner have the right to claim for
damages?
(2) [Irrelevant] Were the petitioners allowed to lodge a
complaint as agents?
HELD:
(1) There was no “rescission” per se. What is involved is a
cancellation based on the negation of the cause of the
contract.
(2) [Irrelevant] No. Petitioners are not parties, heirs, assignees, or
beneficiaries of a stipulation pour autrui under the contracts of
sale, they do not, under substantive law, possess the right they
seek to enforce.
RATIO:
(1) Petitioners confuse the cancellation of the contract by the
NHA as a rescission of the contract under Art. 1191. The right of
rescission or, more accurately, resolution, is predicated on a
breach of faith by the other party.
NHA did not have the right to rescind for the other parties to the
contract, the vendors, did not commit any breach of their
obligation. The cancellation was based on the negation of the
cause arising from the realization that the lands, which were the
object of the sale, were not suitable for housing. Cause, which
is the essential reason for the contract, should be distinguished
from motive, which is the particular reason of a party which
does not affect the other party.
In a contract of sale of a piece of land, such as in this case, the
cause of the vendor (petitioners' principals) in entering into the
contract is to obtain the price. For the vendee, NHA, it is the
acquisition of the land. The motive of the NHA, on the other
hand, is to use said lands for housing.
Ordinarily, a party's motives for entering into the contract do not
affect the contract. However, when the motive predetermines
the cause, the motive may be regarded as the cause. In this
case, it is clear, and petitioners do not dispute, that NHA would
not have entered into the contract were the lands not suitable
for housing. In other words, the quality of the land was an
implied condition for the NHA to enter into the contract. On
NHA’s part, therefore, the motive was the cause for its being a
party to the sale. The findings of the Land Geosciences Bureau
were sufficient for the cancellation of the sale
NHA was justified in canceling the contract. The realization of
the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract
inexistent. Article 1318 of the Civil Code enumerates the
essential requisites of a contract: (1) Consent of the parties; (2)
Subject matter; and (3) Cause of the obligation which is
established. Therefore, assuming that petitioners are parties,
assignees or beneficiaries to the contract of sale, they would
not be entitled to any award of damages.
(2) [Irrelevant, but again, this is worth knowing ] Sec. 2, Rule 3
of the Rules of Court requires that every action must be
prosecuted and defended in the name of the real party-in-
interest. An action shall be prosecuted in the name of the party
who, by the substantive law, has the right sought to be
enforced.
Do petitioners, under substantive law, possess such right? No.
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. . . Article 1311 of the Civil
Code.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient.
Petitioners are mere agents of the owners of the land subject of
the sale. As agents, they only render some service or do
something in representation or on behalf of their principals. The
rendering of such service did not make them parties to the
contracts of sale executed in behalf of the latter.
An agent, in his own behalf, may bring as an assignee of such
contract. Section 372 (1) of the Restatement of the Law on
Agency. Petitioners, however, were not able to show that they
were assignees of their principal. They were not able to
establish any agreement granting them "the right to receive
22
payment and out of the proceeds to reimburse [themselves] for
advances and commissions before turning the balance over to
the principal[s]."
Finally, it did not appear that petitioners were beneficiaries of a
stipulation pour autrui under the second paragraph of Article
1311 of the Civil Code. That petitioners did not obtain their
commissions or recoup their advances because of the non-
performance of the contract did not entitle them to file the
action against respondent NHA. Section 372 (2) of the
Restatement of the Law on Agency (Second).
WHEREFORE, the instant petition is hereby DENIED.
TIMOTEO BALUYOT, et al. VS. COURT OF APPEALS
1999 Jul 22
FACTS
Petitioners are residents of Barangay Cruz-na-Ligas. Diliman,
Quezon City. The Cruz-na-Ligas Homesite Association, Inc. is a
non-stock corporation of which petitioners and other residents
of Barangay Cruz-na-Ligas are members.
Petitioners filed a complaint for specific performance and
damages against private respondent University of the
Philippines before the RTC. The complaint was later on
amended to include private respondent Quezon City
government as defendant.
that plaintiffs and their ascendants are owners since memory
can no longer recall of that parcel of riceland known Sitio Libis,
Barrio Cruz-na-Ligas, Quezon City (now Diliman, Quezon City),
while the members of the plaintiff Association and their
ascendants have possessed since time immemorial openly,
adversely, continuously and also in the concept of an owner,
the rest of the area embraced by and within the Barrio Cruz-na-
Ligas, Diliman, Quezon City;
that since October 1972, the claims of the plaintiffs and/or
members of plaintiff Association have been the subject of
quasi-judicial proceedings and administrative investigations in
the different branches of the government penultimately
resulting in the issuance of that Indorsement dated May 7, 1975
by the Bureau of Lands, and ultimately, in the issuance of the
Indorsement of February 12, 1985, by the office of the President
of the Rep. of the Philippines confirming the rights of the
bonafide residents of Barrio Cruz-na-Ligas to the parcel of land
they have been possessing or occupying;
that defendant UP, pursuant to the said Indorsement from the
Office of the President of the Rep. of the Philippines, issued that
Reply Indorsement wherein it approved the donation of about
9.2 hectares of the site, directly to the residents of Brgy. Krus Na
Ligas. After several negotiations with the residents, the area was
increased to 15.8 hectares (158,379 square meters);
that, however, defendant UP backed-out from the
arrangement to donate directly to the plaintiff Association for
the benefit of the qualified residents and high-handedly
resumed to negotiate the donation thru the defendant Quezon
City Government under the terms disadvantageous or contrary
to the rights of the bonafide residents of the Barrio; that plaintiff
Association forthwith amended its petition and prayed for a writ
of preliminary injunction to restrain defendant UP from donating
the area to the defendant Quezon City Government which was
granted;
that in the hearing of the Motion for Reconsideration filed by
defendant UP, plaintiff Association finally agreed to the lifting of
the said Order granting the injunction after defendant UP made
an assurance in their said Motion that the donation to the
defendant Quezon City Government will be for the benefit of
the residents of Cruz-Na-Ligas;
that, however, defendant UP took exception to the aforesaid
Order lifting the Order of Injunction and insisted on the dismissal
of the case;
that plaintiff manifested its willingness to the dismissal of the
case, provided, that the area to be donated thru the
defendant Quezon City government be subdivided into lots to
be given to the qualified residents together with the certificate
of titles, without cost;
that defendant UP failed to deliver the certificate of title
covering the property to be donated thus the defendant
Quezon City Government was not able to register the
ownership so that the defendant Quezon City Government can
legally and fully comply with their obligations under the said
deed of donation;that upon expiration of the period of
eighteen (18) months, for alleged non-compliance of the
defendant Quezon City Government with terms and conditions
quoted in par. 16 hereof, defendant UP thru its President, Mr.
Jose Abueva, unilaterally, capriciously, whimsically and
unlawfully issued that Administrative Order No. 21 declaring the
deed of donation revoked and the donated property be
reverted to defendant UP.
The petitioners, then, prayed that a writ of preliminary injunction
or at least a temporary restraining order be issued, ordering
defendant UP to observe status quo; thereafter, after due
notice and hearing, a writ of preliminary injunction be issued;
(a) to restrain defendant UP or to their representative from
ejecting the plaintiffs from and demolishing their improvements
on the riceland or farmland situated at Sitio Libis; (b) to order
defendant UP to refrain from executing another deed of
donation in favor another person or entity and in favor of non-
bonafide residents of Barrio Cruz-na-Ligas different from the
Deed of Donation, and after trial on the merits, judgment be
rendered:declaring the Deed of Donation as valid and
subsisting and ordering the defendant UP to abide by the terms
and conditions thereof.
The Court of Appeals reversed the decision of the trial court.
ISSUE
WON defendant UP could execute another deed of donation
in favor of third person.
RULING
The Court found all the elements of a cause of action
contained in the amended complaint of petitioners. While,
admittedly, petitioners were not parties to the deed of
donation, they anchor their right to seek its enforcement upon
their allegation that they are intended beneficiaries of the
donation to the Quezon City government. Art. 1311, second
paragraph, of the Civil Code provides:
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
Under this provision of the Civil Code, the following requisites
must be present in order to have a stipulation pour autrui:(1)
there must be a stipulation in favor of a third person; (2) the
stipulation must be a part, not the whole of the contract;(3) the
contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest; (4) the third person must have
communicated his acceptance to the obligor before its
revocation; and (5) neither of the contracting parties bears the
legal representation or authorization of the third party.
The allegations in the following paragraphs of the amended
complaint are sufficient to bring petitioners’ action within the
purview of the second paragraph of Art. 1311 on stipulations
pour autrui:
1. Paragraph 17, that the deed of donation contains a
stipulation that the Quezon City government, as donee, is
required to transfer to qualified residents of Cruz-na-Ligas, by
way of donations, the lots occupied by them;
2. The same paragraph, that this stipulation is part of conditions
and obligations imposed by UP, as donor, upon the Quezon City
government, as donee;
3. Paragraphs 15 and 16, that the intent of the parties to the
deed of donation was to confer a favor upon petitioners by
transferring to the latter the lots occupied by them;
4. Paragraph 19, that conferences were held between the
parties to convince UP to surrender the certificates of title to the
city government, implying that the donation had been
accepted by petitioners by demanding fulfillment thereof and
that private respondents were aware of such acceptance; and
5. All the allegations considered together from which it can be
fairly inferred that neither of private respondents acted in
23
representation of the other; each of the private respondents
had its own obligations, in view of conferring a favor upon
petitioners.
The amended complaint further alleges that respondent UP has
an obligation to transfer the subject parcel of land to the city
government so that the latter can in turn comply with its
obligations to make improvements on the land and thereafter
transfer the same to petitioners but that, in breach of this
obligation, UP failed to deliver the title to the land to the city
government and then revoked the deed of donation after the
latter failed to fulfill its obligations within the time allowed in the
contract. For the purpose of determining the sufficiency of
petitioners’ cause of action, these allegations of the amended
complaint must be deemed to be hypothetically true. So
assuming the truth of the allegations, we hold that petitioners
have a cause of action against UP.
1315 CONTRACTS PERFECTED BY
MERE CONSENT
CITY OF CEBU v. SPS. APOLONIO AND BLASA DEDAMO, GR No.
142971, 2002-05-07
FACTS:
petitioner City of Cebu filed... a complaint for eminent domain
against respondents spouses Apolonio and Blasa Dedamo.
The petitioner alleged therein that it needed the following
parcels of land of respondents... for a public purpose
, i.e., for the construction of a public road
The... total area sought to be expropriated is 1,624 square
meters with an assessed value of P1,786,400. Petitioner
deposited with the Philippine National Bank the amount of
P51,156 representing 15% of the fair market value of the
property to... enable the petitioner to take immediate
possession of the property pursuant to Section 19 of R.A. No.
7160.
Respondents, filed a motion to dismiss the complaint because
the purpose for which their property was to be expropriated
was not for a public purpose but for benefit of a single private
entity, the Cebu Holdings, Inc. Petitioner could simply buy
directly from them the... property at its fair market value if it
wanted to, just like what it did with the neighboring lots. Besides,
the price offered was very low in light of the consideration of
P20,000 per square meter, more or less, which petitioner paid to
the neighboring lots.
petitioner filed a motion for the issuance of a writ of possession
The motion was granted by the trial court... the parties
executed and submitted to the trial court an Agreement...
wherein they declared that they have partially settled the case
and in consideration thereof they agreed
Pursuant to said agreement, the trial court appointed three
commissioners to determine the just compensation of the lots
sought to be expropriated.
Thereafter, the commissioners submitted their report, which
contained their respective assessments of and
recommendation as to the valuation of the property.
Plaintiff is directed to pay Spouses Apolonio S. Dedamo and
Blasa Dedamo the sum of pesos:
P24,865.930.00... the commissioners submitted an amended
assessment... and fixed it at
P12,824.10 per square meter, or in the amount of P20,826,339.50.
he assessment was approved as the just compensation thereof
by the trial court
Petitioner elevated the case to the Court of Appeals... etitioner
alleged that... just compensation should be based on the
prevailing... market price of the property at the
commencement of the expropriation proceedings.
Court of Appeals affirmed in toto the decision of the trial court.

petitioner filed with us the petition for review in the case at bar.
ISSUES:
whether just compensation should be determined as of the
date of the filing of the complaint.
RULING:
just compensation shall be determined as of the time of actual
taking.
We explicitly stated... that although the general rule in
determining just compensation in eminent domain is the value
of the property as of the date of the filing of the complaint, the
rule "admits of an exception: where this Court fixed the value of
the property as of the date it was taken and not at... the date
of the commencement of the expropriation proceedings."
Also, the trial court followed the then governing procedural law
on the matter, which was Section 5 of Rule 67 of the Rules of
Court, which provided as follows:
SEC. 5. Ascertainment of compensation. -- Upon the entry of the
order of condemnation, the court shall appoint not more than
three (3) competent and disinterested persons as
commissioners to ascertain and report to the court the just
compensation for the... property sought to be taken. The order
of appointment shall designate the time and place of the first
session of the hearing to be held by the commissioners and
specify the time within which their report is to be filed with the
court.
the parties, by a solemn document freely and voluntarily
agreed upon by them, agreed to be bound by the report of the
commission and approved by the trial court. The agreement is
a contract between the parties. It has the force of law
between... them and should be complied with in good faith.
Furthermore, during the hearing
, petitioner did not interpose a serious objection.
It is therefore too late for petitioner to question the valuation
now without violating the principle of equitable estoppel.
Records show that petitioner consented to conform with the
valuation recommended by the commissioners. It cannot
detract from its agreement now and... assail correctness of the
commissioners' assessment.
1317 NO ONE MAY CONTRACT IN
THE NAME OF ANOTHER WITHOUT
YAO KA SIN TRADING VS COURT OF APPEALS
FACTS:
In 1973, Constancio Maglana (Malagna), president of Prime
White Cement Corporation (Prime White), sent an offer letter to
Yao Ka Sin Trading (YKST). The offer states that Prime White is
willing to sell 45,000 bags of cement at P24.30 per bag. The offer
letter was received by YKST’s manager, Henry Yao. Yao
accepted the letter and pursuant to the letter, he sent a check
in the amount of P243,000.00 equivalent to the value of 10,000
bags of cement. However, the Board of Directors(Board) of
Prime White rejected the offer letter sent by Maglana but it
considered Yao’s acceptance letter as a new contract offer
hence the Board sent a letter to YKST telling him that Prime White
is instead willing to sell only 10,000 bags to YKST and that he has
ten days to reply; that if no reply is made by Yao then they will
consider it as an acceptance and that thereafter Prime White
shall deposit the check worth P243,000.00 in its account and
then deliver the cements to YKST. Henry Yao never replied.
Later, Yao Ka Sin sued Prime White to compel the latter to
comply with what Yao Ka Sin considered as the true contract,
the original offer of Maglana. Prime White in its defense averred
that although Maglana is empowered to sign contracts in
behalf of Prime White, such contracts are still subject to
approval by Prime White’s Board, and then it still requires further
approval by the National Investment and Development
Corporation (NIDC), a government owned and controlled
corporation because Prime White is a subsidiary of NIDC.
V. STATEMENT OF THE CASE:
In 1974, YKS/YKST filed with the then Court of First Instance of
Leyte(CFI) a Complaint for Specific Performance with Damages
24
Against Prime White to compel the latter to comply with what
Yao Ka Sin considered as the true contract, i.e., 45,000 bags at
P24.30 per bag. Prime white filed its Answer with Counterclaim.
CFI ruled in favor of YKS. Both parties appealed from the said
decision to the Court of Appeals(CA). CA reversed the ruling of
the CFI.
VI. ISSUE:
VII. RULING:
No. The Board may enter into contracts through the president.
The president may only enter into contracts upon authority of
the Board. Hence, any agreement signed by the president is
subject to approval by the Board. Unlike a general manager,
the president has no apparent authority to enter into binding
contracts with third persons. Further, if indeed the by-laws of
Prime White did provide Maglana with apparent authority, this
was not proven by Yao Ka Sin. As a rule, apparent authority may
result from (1) the general manner, by which the corporation
holds out an officer or agent as having power to act or, in other
words, the apparent authority with which it clothes him to act in
general or (2) acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, whether within
or without the scope of his ordinary powers. These are not
present in this case.
VIII. DISPOSITIVE PORTION:
WHEREFORE, judgment is hereby rendered AFFIRMING the
decision of respondent Court of Appeals in C.A.-G.R. No. 61072-
R promulgated on 21 Decem
G.R. No. 121313 April 10, 1997
RAVAGO EQUIPMENT RENTALS, INC., plaintiff-appellee,
vs.
COURT OF APPEALS and ALCOLEX CORPORATION,
respondents.
This petition for review on certiorari seeks to annul and set aside
the decision dated 10 January 1995 and the resolution dated
24 July 1995 of respondent Court of Appeals in CA G.R. CV No.
41482 entitled Ravago Equipment Rentals, Inc. v. Alcolex
Corporation.
The issues in this case arose from a complaint for a sum of
money filed by herein petitioner Ravago Equipment Rentals,
Inc. (hereinafter "Ravago").
The complaint avers that on or about 10 October 1990, Ravago
entered into a Lease Contract with herein private respondent
Alcolex Corporation (hereinafter "Alcolex") wherein the former
leased to the latter one (1) unit Caterpillar Diesel Generator,
Model 3412 under terms and conditions provided for in a Rental
Contract attached as Annex "A" to the complaint.1
The aforementioned lease contract includes the following
stipulations:
a) The lessee (Alcolex) shall pay One Hundred Twenty
Thousand Pesos (P120,000.00) per month;
b) The above rental price shall be for "use, non-use or
standby" of the generator unit or "for 200 operating hours within
the period which ever comes first";.
c) Operation in excess of 200 hours shall be charged
P600.00 per hour; one month is to be computed at eight (8)
hours (of operation) per day for 25 days (equivalent to 200
hours);
d) In cases where the generator is to be used on a
holiday or a Sunday, a minimum of eight (8) hours per day shall
be charged to the lessee.
The complaint further avers that from 10 October 1990 to 1
February 1991, the total rental/charges due from Alcolex
amounted to P1,l72,406.50, of which only P525,437.50 had been
paid. Ravago therefore prays that Alcolex be ordered to pay
the balance of P646,969.00 as well as exemplary damages,
attorney's fees and costs of suit.2
Alcolex, in its answer to the complaint, denied the genuineness
and due execution of the lease contract. Alcolex averred that
Mr. Edgardo 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. Alcolex further
admitted paying P525,437.50 but argued that the same
represented full and total payment for the entire duration of
their use of the leased generator.3
On 14 September 1992, the trial court rendered a decision*
ordering Alcolex to pay the following sums:
a) P646,969.00 for overtime use of and unpaid
rentals/charges for the generator;
b) P20,000.00 as exemplary damages;
c) P20,000.00 as attorney's fees;
d) All expenses of litigation.
On appeal, the Court of Appeals rendered a decision* dated
10 January 1995 setting aside the decision of the trial court and
dismissing the complaint filed therein.
Ravago's motion for reconsideration was denied on 24 July
1995, hence, the present petition for review based on the
following errors allegedly committed by; the Court of Appeals:
THE RESPONDENT COURT ERRED IN CONSIDERING AN ISSUE
WHICH WAS RAISED FOR THE FIRST TIME ON APPEAL.
THE RESPONDENT COURT ERRED IN HOLDING THAT PETITIONER
FAILED TO PROVE ITS CLAIM AGAINST PRIVATE RESPONDENT. 4
Ravago argues that the issue of the veracity of the overtime
charges for the use of the generator was never raised by
Alcolex before the trial court, the only issue raised then being
whether or not the lease contract is binding on Alcolex. It is thus
contended that the Court of Appeals erred in considering an
issue raised for the first time on appeal,5 since Ravago maintains
that Alcolex never denied the overtime use of the leased
equipment and the charges therefor.6
On the other hand, Alcolex denies liability under the lease
contract which it maintains is unenforceable against the
corporation since Edgardo Chua who supposedly signed for
the corporation was not authorized to do so.
Alcolex additionally avers that there was no admission,
expressed or implied, of the alleged overtime charges, contrary
to the argument of Ravago. It is argued that the answer of
Alcolex to the complaint before the trial court admitted
payment of P525,437.50 which amount represents "full, total and
final payment on the use of the generator under the terms and
price agreed upon by the parties."7
The core issue in this appeal is whether or not Alcolex is liable to
pay overtime charges for the use of the generator leased from
Ravago.
The complaint before the trial court having been filed by herein
petitioner Ravago, the burden of proving Alcolex's liability for
overtime use of the leased generator lies with petitioner.
Probandi necessitas incumbit illi qui agit.
The first issue raised by petitioner Ravago need not be discussed
at length. It would suffice to state that the statement of Alcolex
in its answer to the complaint that "defendant was made to
believe that when it agreed to a very excessive rental of
P120,000.00 a month, that said amount covers the maximum
and full monthly charges of operation during the lease period"8,
is an effective denial by Alcolex of liability for any overtime
charges. Moreover, Alcolex stated in its memorandum before
the trial court thus:
It may well be noted that instant suit is for collection of alleged
overtime charges on the operation of the leased generator. The
record is bereft of any proof whatsoever about the alleged
overtime, whether actually incurred their respective duration on
specific dates and other relevant data. No testimony was
introduced to show actual overtime, their specific duration and
over what period. Of course, testimony of this nature proceeds
from persons who have actually operated the generator or the
one in charge of checking about the duration of its working
period.9
25
It is thus not correct for petitioner to state that the issue of the
veracity of the overtime charges was never raised before the
trial court.
On whether petitioner Ravago is entitled to the reliefs prayed
for in its complaint, the evidence presented leaves much to be
desired.
Ravago presented the alleged rental contract with Alcolex, 10
a summary of accounts prepared by its employee, a certain
Nicia Ramos, 11 a demand letter addressed to Alcolex signed
by Ravago's counsel, Atty. Larry Iguidez as well as a five (5)
page itemized version of the above-mentioned statement of
account. 12
Respondent Alcolex cannot assail the enforceability of the
rental contract on the ground that Edgardo Chua, who signed
the contract for Alcolex, had no authority to bind the
corporation. The Court of Appeals correctly held that the
contract, assuming that Edgardo Chua had no authority to sign
for Alcolex, was impliedly ratified when the generator subject of
the contract was used by Alcolex for its operations. Thus, under
Article 1317 of the Civil Code, which provides that:
Art. 1317. 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 of 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 contradicting party.
the contract is enforceable against respondent Alcolex.
While the subject contract of lease is binding on Alcolex,
petitioner Ravago has not sufficiently proved the overtime use
of the generator. As correctly noted by the Court of Appeals,
the person who prepared the statement of account against
Alcolex was not presented in court. Moreover, said statement
of account does not per se prove actual overtime use by
Alcolex of the generator. There is, in short, a dearth of evidence
to show whether the overtime charges reflected in the
statement of account were actually incurred by Alcolex.
Absent sufficient proof of how the overtime charges were
arrived at, the complaint before the trial court must perforce
fail.
The argument of Ravago that respondent Alcolex's failure to
reply to the demand letters is sufficient basis for the latter's
liability for overtime charges is non-sequitur and without merit.
As early as 1927, the United States Federal Supreme Court
through Mr. Justice Oliver Wendell Holmes laid down a basic
principle in the law on evidence, thus:
A man cannot make evidence for himself by writing a letter
containing the statements that he wishes to prove. He does not
make the letter evidence by sending it to the party against
whom he wishes to prove the facts [stated therein]. He no more
can impose a duty to answer a charge than he can impose a
duty to pay by sending goods. Therefore a failure to answer
such adverse assertions in the absence of further circumstances
making an answer requisite or natural has no effect as an
admission. 13
All told, Ravago's failure to prove by preponderance of
evidence the liability of Alcolex for overtime charges precludes
an award in its favor for overtime charges.
WHEREFORE, based on the foregoing, the decision of the Court
of Appeals is hereby AFFIRMED. SO ORDERED.