Digests

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Advertisement for Bidders – Article 1326 Jardine Davis vs CA G.R. No. 128066 Date: June 19, 2000 Petitioner: JARDINE DAVIS INC. Respondents: CA and FAR EAST MILLS SUPPLY CORPORATION

6.

FEMSC filed a complaint • PF – Reneged the contract • Jardine – Unwarranted interference and inducement ◦ Jardine filed a demurrer to evidence (dismiss complaint on ground of insufficiency of evidence)

7.

RTC Pasig • Granted Jardine's Demurrer to evidence ◦ While it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court of law. • Proceeded with the case against PF • DECISION – in favor of FEMSC. PF to pay FEMSC ◦ P2.3m – Value of engineering services it rendered ◦ $14k + P900k – Contractor's mark-up on installation work since it would be impossible to compel PF to fulfill its obligation since Jardine's construction already started ◦ 20% of total amount – attorney's fees ◦ Costs

8.

They both appealed • FEMSC – Against the granting of the demurrer to evidence which resulted to the dismissal of the case against Jardine • PF – Decision of RTC which ordered it to pay FEMSC

9.

CA's Decision • Affirmed the decision against PF ◦ Plus P2m moral damages, P1m exemplary damages, 20% attorney's fees • Jardine to pay FEMSCO for inducing PF to violate its contract ◦ P2m moral damages

Petitioner: PURE FOODS CORPORATION Respondents: CA and FAR EAST MILLS SUPPLY CORPORATION (FEMSC) Ponente: J. Bellosilo FACTS

1.

In 1992, during the height of power crisis, Pure Foods decided to install (2) 1500 KW generators in its food processing plant in San Roque, Marikina City to curtail losses.

2.

November 1992, a bidding was held • Out of the 8 prospective bidders who attended the pre-bidding conference, only 3 submitted bid proposals and gave bid bonds of 5% of their bid ◦ FEMSC ◦ Monark ◦ Advance Power

3.

Pure foods confirmed the award to FEMSC through a letter to the latter's president. • Lump sum: P6,137,293 ◦ For materials and labor • Payable: 2x a month with 10% retention ◦ Retained amount will be released 30 days after acceptance of the completed project and upon posting of Guarantee bond (20% of contract price) • When: 20 working days after the delivery of the Generator Set ◦ Penalty of 1/10 of 1% of the purchase price for every day of delay • Contractor will put up a 30% performance bond and all-risk insurance policy. • Warranty of 1 year against defective material or/and workmanship.

4.

FEMSC paid the performance bond, acquired an all-risk insurance policy and started purchasing materials while PF returned the bidder's bond of P1m.

5.

December 22, 1992, PF's vice-president unilaterally cancelled the award due to “significant factors were uncovered and brought to their attention which dictate the cancellation and warrant a total review and re-bid of the project.” FEMSC protested this but PF awarded it to JARDINE NELL, which was not one of the bidders.

1 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

ISSUE1: WON a perfected contract existed between PF and FEMSCO Pure Food's Argument – No perfected contract 1. Its December letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. 2. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. 3. Hence, no contract was perfected between PUREFOODS and FEMSCO. HELD1: YES. PF accepted the offer of FEMSCO which respondent to the advertisement.

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 1.

2. 3.

4. 5. 6.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror. The only issue is whether or not there was an acceptance of an offer and if it was communicated, thereby creating a contract. Since PF conducted a bid, Article 1326 applies (Advertisements for bidders are simply invitations to make proposals) • Advertisement: Terms and Conditions of the Bidding • Offer: bid proposals or quotations submitted by the prospective suppliers • Reply: Acceptance or rejection by PF of the offers. The December letter constituted as an acceptance. . The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm FEMSCO the project," could not be more categorical. The terms and conditions were imposed on the performance rather than on the perfection of the contract. Failure to comply with a condition on the perfection of contract results in the failure of a contract, failure to comply with the condition on performance merely gives the other party options and/or remedies to protect his interests.

ISSUE2: Assuming that the letter was a “conditional counter-offer”, was there acceptance? HELD2: YES.

1. 2.

3. 4.

An acceptance may either be express or implied, and this can be inferred from the contemporaneous and subsequent acts of the contracting parties. FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance. It acquiesced to the terms that the performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract. The acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counter-offer." PF's letter “is hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place

NOTES: The discussion on the price of the project 2 months after the December letter can be deemed as nothing more than a pressure being exerted by petitioner PF on respondent FEMSCO to lower the price even after the contract had been perfected. PF was haggling for a lower price even after

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agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. PF also asserts the absence of a purchase order. But purchase orders do not make or break a contract. ISSUE3: WON there was bad faith that warrants the awarding of moral damages? Pure Food's Argument – Bad faith absent 1. It was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded. HELD3: YES, there was bad faith. 1. The SC subscribes to the factual findings of the lower court 2. PF has acted with bad faith and this was further aggravated by the subsequent contract with Jardine. It is very evident that PF 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. 3. FEMSC's reputation was besmirched since it ordered from suppliers only to cancel them. But moral damages is reduced to P1m as it is never intended to enrich FEMSC. Exemplary is also reduced to P100k. ISSUE4: Assuming there existed a perfected contract, WON there is any showing that JARDINE induced or connived with PF to violate the latter's contract with FEMSCO. Jardine's Argument: 1. Records are bereft of any showing that it had prior knowledge of the supposed contract between PF and FEMSCO, and that it induced PF to violate the latter's alleged contract with FEMSCO. 2. FEMSCO, an artificial person, is not entitled to moral damages. 3. But granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely excessive. HELD4: No showing that Jardine induced PF to violate the contract. 1.

While it may seem that there was connivance, no specific evidence supports such conclusion.

DISPOSITIVE: Pure Foods to pay • P2.3 m – engineering services • $14k and P900k – the contractor's mark-up on installation work, • Attorney's fees equivalent to twenty percent (20%) of the total amount due, • Moral damages of P1,000,000.00 • Exemplary damages of P1,000,000.00. • Costs against petitioner (Jardine and Pure Foods).

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015

3 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Period of Acceptance – Article 1324 Sanchez vs Riegos G.R. No. L-25494 Ponente: C.J. Concepcion Date: June 14, 1972

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

Plaintiff-Appellee: NICOLAS SANCHEZ Defendant-Appellant: SEVERINA RIGOS Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary.

FACTS:

1.

2.

3.

4.

On April 3, 1961, Sanchez and Rigos executed an “Option to Purchas” • Rigos to sell a land in the barrios of Abar and Sibot, San Jose, Nueva Ecija, for P1,510 • Option shall be deemed terminated and elapsed if Sanchez fails to buy this within 2 years (April 3, 1963) Sanchez made several tenders of of payment amounting to P1,510 but were rejected by Riegos. • On March 2, 1963, Sanchez consignated the amount and file an action against her for specific performance and damages. Rigos' Defense • That contract is a unilateral promise to sell, and the same being unsupported by any valuable consideration, hence, null and void. Lower Court – in favor of Sanchez • Relied on Article 1354 • Rigos to accept the consigned amount and to execute the deed of conveyance. • Rigos to pay attorney's fees of P200

HELD2: Article 1479 (2)

1.

ISSUE3: WON the contract is binding upon the promisor (Riegos?) HELD3: YES, it is binding upon Riegos. Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised

1. 2. 3. 4. 5.

ISSUE1: WON the contract is a “contract to buy and sell” or merely an “option to buy”? Sanchez's argument: • Rigos was committed to sell while he (sanchez) was committed to buy the land. • The promise is reciprocally demandable (under 1st paragraph of Article 1479) HELD 1: Merely an option to buy. 1. As seen in their contract entitled - “Option to Purchas” 2. Hence, the option did not impose to Sanchez the obligation to purchase Rigos' property. 3. However, there is no consideration distinct from the price for the sale of land. ISSUE2: What is the applicable article – 1479 or 1354?

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Article 1354 applies to contracts in general while the 2 nd paragraph of Article 1354 refers more to “sales” and to “an an accepted unilateral promise to buy or to sell.”

There is no distinction between Article 1324 and 1479 – reconcile them. In this case, the option was without consideration and was accepted before the withdrawal. The promise as an option which, although not binding as a contract in itself due to lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. This is similar to a mere offer of contract of sale, which is not binding until accepted. If acceptance is made before withdrawal, it is binding. Since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

NOTES:

•

American authorities state that once an offer is accepted, it cannot be withdrawn regardless of the existence of consideration. This is not applied in our jurisdiction because the law is clear, hence, it must be applied, unless amended by Congress.

Southwestern Sugar & Molasses (Ruling which Supreme Court abandoned in this case)

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 The option can still be withdrawn, even if accepted, if the same is not supported by any consideration. • Article 1324 but this is modified by 1479. Vices of Consent – 1330 – 1346. Heirs of William Sevilla vs Leopoldo G.R. No. 150179 Date: April 30, 2003 Ponente: J. Ynares-Santiago Petitioners: • Heirs of William Sevilla ◦ Wilfredo Sevilla ◦ Wilson Sevilla ◦ William Sevilla ◦ Willington Sevilla ◦ William Sevilla Jr, • Heirs of Maria Sevilla ◦ Amador Sevilla ◦ Jeno Cortes ◦ Maricel Cortes ◦ Alelei Cortes and ◦ Anjei Cortes Respondents: • Leopoldo Sevilla • Peter Sevilla • Luzvilla Sevilla

•

FACTS

1. 2.

Filomena Almiro de Sevilla died intestate leaving 8 children (William, Maria, Jimmy, Felipe, Rosa and Peter, Leopoldo, Luzvilla all surnamed Sevilla) • William, Jimmy and Maria are now deceased and survived by their family. Filomena left the following 4 properties ◦ Parcel 1: General Luna St., Dipolog City (P31,360) ▪ With commercial building ▪ Paraphernal property of Filomena which she co-owned with her sisters (Honorato and Felisa – both single) ◦ Parcel 2: Olingan, Dipolog City (P5,890) ▪ Conjugal property with her late husband – Andres (no prob) ◦ Parcel 3: Magsaysay Street, Dipolog City (P12,870) ▪ Conjugal property with her late husband – Andres (no prob) ◦ Parcel 4: Sta. Filomena, Dipolog City (P3,150) ▪ Conjugal property with her late husband – Andres (no prob)

5 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

3. 4. 5. 6. 7. 8.

9.

Felisa and Honorato lived in Filomena's house with their nephew Leopoldo and his family. Leopoldo attended to the needs of his mother, Filomena, and his 2 aunts. Honorato died and 1/3 of her share went to Felisa and the heirs of Filomena. Felisa and Peter adjudicated the 1/3 share of Honorato the heirs of Filomena and to Felisa via an extra judicial partition. Respondents obtained a cancellation of TCT and its issuance in the name of Felisa and the heirs of Filomena. But these were left unsigned pending Peter's submssion of an SPA which authorized him to represent the other heirs of Filomena. Felisa donated to Leopoldo ½ of her share in Parcel 1 and when she died, her last will was effected – ½ share of her share in Parcel 1 to the Leopoldo spouses The heirs of the 3 deceased with Felipe and Rosa filed a complaint to annul the deed of donation and extra judicial partition. a) Deed of donation is tainted with fraud • Felisa was 81 and seriously ill and unsound mind during that time b) Deed of extra-judicial partition is void • Executed without their knowledge and consent. Respondent's Reply – VALID • No fraud and Felisa was of sound mind. • She freely did that because of love and Leopoldo's service in the past

10. RTC's Decision – Deed of Donation valid but Extra-judicial partition unenforceable 11. Both appealed • Petitioners – The Deed of donation is invalid!!! • Respondents – The extra-judicial partition is enforceable!! 12. CA's Decision – RTC affirmed in toto ISSUE1: WON the deed of donation executed by Felisa to Leopoldo is invalid for being executed with fraud, undue pressure and influence? HELD1: VALID. Fraud, undue pressure and influence is not present. Precepts • Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. • Under Article 737 of the Civil Code, the donors capacity shall be determined as of the time of the making of the donation. • An agreement of the parties is essential, and the attendance of a vice of consent renders the donation voidable. Present Property • During the execution of donation, Felisa was already the owner of Parcel 1 ◦ Her 1/3 share was increased by ½ when she inherited from Honorato.

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 •

This is a present property which she can validly dispose of.

On Fraud 1. There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties, or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. 2. Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies, must prove. If the one who asserts fail to sufficiently prove, then defendant is not obliged to assert a defense. 3. Factual findings of RTC, more so if affirmed by CA, is respected. This may be set aside in exceptional circumstances, but none is present since fraud or influence is not present in the following allegations of the petitioner: a) Felisa lived with Leopoldo and she was being supported out of the rentals derived from the building constructed on the land which was a common fund. b) She was 82 years old when he accompanied her for the purpose of executing her last will and testament . c) That in said last will, she had devised in favor of respondent Leopoldo ½ of the land but he was not contented and consulted a lawyer as to how he will be able to own the land immediately; d) That upon getting the advice of the Clerk of Court of RTC Zamboanga, she executed a Deed of Donation e) That at the time of the execution of the Deed of Donation, Parcel 1 was not yet partitioned. f) Leopoldo, Peter and Felisa were the only ones who executed the Deed of Extrajudicial Partition. He divided parcel 1 into 2 lots, ½ for him and the other half to Peter and Felisa and himself. g) Leopoldo filed a petition for issuance of the corresponding titles for the two lots, but the Register of Deeds of Dipolog City refused to issue the corresponding titles for the two lots to respondent Leopoldo so that up to this moment the two tiles were left unsigned by the Register of Deeds. 4. These are vague – what acts of Leopoldo constituted fraud and undue influence and on how these acts vitiated the consent of Felisa. 5. Fraud and undue influence that vitiated a party's consent must be established by full, clear and convincing evidence, otherwise, the latter's presumed consent to the contract prevails. 6. Anyway, the notary public testified that even if Felisa was old, she was of sound mind and could talk sensibly. ISSUE2: WON the deed of Extra-judicial partition is valid? HELD2: No, it is void ab initio and not just unenforceable.

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1. 2. 3. 4. 5.

One of the requisites of a contract is consent, and consent presupposes legal capacity. Thus, there is said to be no consent, and consequently, no contract when the agreement is entered into by one in behalf of another who has never given him authorization therefor unless he has by law a right to represent the latter When Felisa executed this partition, she was no longer the owner of the ½ since she already donated it to Leopoldo who accepted it – such donation is immediately operative and final – and became the absolute owner. Felisa did not possess the capacity to give consent to or execute the deed of partition inasmuch as she was neither the owner of the land nor the authorized representative of Leopoldo. But this does not affect the validity of the donation.

Parcel 1: • ½ – Leopoldo due to donation • ½ – Divided equally among heirs of Filomena including Leopoldo. Notes: •

Rosa's name was omitted in the RTC's decision, SC included it.

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Contract of Option – Article 1324 Adelfa Properties vs CA G.R. No. 111238 Date: January 25, 1995 Ponente: Petitioner: ADELFA PROPERTIES INC. Respondents: CA, ROSARIO JIMENEZ-CASTANEDA and SALUD JIMENEZ FACTS 1. 2. 3.

The respondents and their brothers (Jose and Dominador) were the co-owners of a land in Barrio Culasi, Las Pinas, Metro Manila (17,710 sq.m) Jose and Dominador sold their shares (which consists of ½) to ADELFA properties A “Confirmatory Extrajudicial Partition” was executed by the Jimenezes • Eastern Part: Jose and Dominador • Western Part: Rosario and Salud

4.

Adelfa expressed interest in buying the Western part

5.

An “Exclusive Option to Purchase” was executed. • Price: P2,806,150 • Option money: P50,000 (received from Adelfa) credited as partial payment • Due: November 30, 1989 • Default: Option is cancelled and 50% of the option is forfeited and 50% will be returned upon sale of the land to a 3rd party.

6.

The owner's copy of the title of Salud was lost and was reissued. This copy remained in possession of Atty. Bernardo (respondent's counsel) until turned over to Adelfa. 7. Before Adelfa was able to pay, it received summons for a complaint filed by the nephews and nieces of the Jimenezes for annulment of deed of sale in favor of Household Corporation and recovery of ownership. 8. Because of that, Adelfa informed the respondents and Jose and Dominador that it would suspend payment of the full price and that they settle the case. Also that on November 30, although a holiday, Adelfa will wait at our office until 7pm. 9. Salud refused Adelfa's suggestion and asserts that the suspension of payment amounts to lack of work of honor. 10. Adelfa caused the annotation of the option contract on the titles and the 1st sale of the Eastern portion. 11. Respondents sent Francisca Jimenez to Atty. Bernardo (as adelfa's counsel – weird??) to tell them that they were cancelling the transaction. • Atty. Bernardo offered to pay the purchase price provided that the P500k be deducted – rejected by respondents. 12. The case initiated by the nephews and nieces were dismissed.

7 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

13. On February 28, 1990, respondents executed a deed of conditional sale in favor of Emylene Chua. • Price: P3,029,250 ◦ P1.5m was paid on the same date while the balance to be paid upon transfer of title. 14. Atty. Bernardo wrote them informing that since the case was dismissed, they were willing to pay the purchase price simultaneous with your execution of the deed of absolute sale, but this was ignored. 15. Respondents sent a letter to Adelfa and enclosed is the refunded P25k option price. They then requested that the owner's duplicate copy of the certificate of title of Salud be returned to them and Adelfa failed to do so. 16. RTC's Decision – In favor of respondents • Since this is an option contract, the suspension of payment was a counter-offer which is tantamount to rejection of the offer. • Adelfa cannot suspend payment since the case did not involve the Western part but the Eastern. • Exclusive Option cancelled • Sale to Chua valid 17. CA's Decision – RTC affirmed • Failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property • Suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option • CC 1590 on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. ISSUE1: WON this was a contract of sale or contract to sell HELD1: Contract to sell. Contract to Sell

Contract of Sale

By agreement the ownership is reserved in the The title passes to the vendee upon the vendor and is not to pass until the full payment delivery of the thing sold of the price. Title is retained by the vendor until the full Vendor has lost and cannot recover ownership payment of the price, such payment being a until and unless the contract is resolved or positive suspensive condition and failure of rescinded which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 • 1. 2.

The option contract was a contract to sell and not a contract of sale. Parties never intended to transfer title until payment of purchase price a) Although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, it does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. Deed of absolute sale would have been issued only upon the payment of the balance of the purchase price. b) Not been shown there was delivery of the property, actual or constructive, made to herein petitioner. • The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. • The possession of the title by Atty. Bernardo would normally be understood as delivery but they really had no intention since it was only with Bernardo since he was their counsel for the reconstitution of the title.

ISSUE2: WON this was strictly an option contract? HELD2: NO, again, a contract to sell. • The intention and subsequent acts of the parties must be considered. Their intention was to enter into a contract to sell and the title of “Exclusive Option to Purchase” is not controlling where text shows it is more of a contract to sell. Option •

•

•

An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at the election or option of the other party. It imposes no obligation on the person holding the option. Until acceptance, strictly speaking, it is not a contract and does not vest any right but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.

Contract • Involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service. Option vs Contract

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•

•

Option is an unaccepted offer ◦ Only upon acceptance and notice does it become binding. Contract of Sale ◦ Fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced

In this Case • There is concurrence of Adelfa's offer to buy and respondent's acceptance thereof. ◦ It was first required that the title be reconstituted and adelfa's counsel Atty. Bernardo helped them. • The exclusive option to purchase was prepared, signed, thereby creating a perfected contract to sell. ISSUE3: WON Adelfa's offer to deduct the P500k from purchase price for settlement of civil case is tantamount to counter-offer? HELD3: No. 1. There already existed a perfected contract between the parties at the time the alleged counter-offer was made. 2. Any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. 3. ANYWAY, IT IS STILL NOT A COUNTER-OFFER since Adefla's sole purpose was to settle the case so it could comply with its obligation. 4. It believed in good faith that compliance is improbable at that time. 5. The use of “lack of word of honor” indicates that respondents believe Adelfa was already bound to pay the balance ISSUE4: WON this was option money or earnest money? HELD4: Earnest money. 1. While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, what is involved in the instant case is not an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining from the original total sum already agreed upon. 2. The option money was actually earnest money, to form part of the purchase price. It was not distinct. 3. Even if called option money, it clearly is earnest money.

Option Money

Earnest Money

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Money given as a distinct consideration for an option contract

Part of the purchase price

Applies to a sale not yet perfected Given only where there is already a sale While when the would-be buyer gives option money, he is not required to buy

When given, the buyer is bound to pay the balance.

ISSUE5: WON there was a valid suspension of payment? Adelfa's Argument – Valid suspension • Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. HELD5: Yes, justified. 1. The case filed by nephews and nieces not only touched the Eastern portion but recovery of the land of the Western part. The plaintiffs were claiming to be co-owners of the entire land. 2. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in CC 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. ISSUE6: WON respondents may be compelled to sell and deliver the property? HELD6: No, they may not be compelled. 1. Adelfa's failure to duly effect the consignation of the purchase price after the disturbance had ceased • It already knew of the dismissal of that case yet only sent a letter 2 months after and it was only a mere notice to pay. Sending of a letter is not a valid tender of payment and they failed to consign it.

•

The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase)

9 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

• 2.

rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. ◦ But again, this is not an option contract so consignation is necessary. They can only suspend until the dismissal of the case, after such they should have paid but failed to do so in time.

The fact that the contract to sell had been validly rescinded by private respondents. • CC1592 Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell • Judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Violence and Intimidation Martinez vs Hongkong and Shanghai Bank G.R. No. L-5496 Date: February 19, 1910 Ponente: J. Moreland Plaintiffs-appellants: MERCEDES MARTINEZ Y FERNANDEZ, ET AL. Defendants-appellants: THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL. FACTS: 1. 2. 3. 4.

5. 6.

7.

8.

10

Alejandro S. Macleod (husband of Mercedes) was for many years the managing partner of the house of Aldecoa & Co. in the city of Manila. He withdrew from the management when Aldecoa & Co. went into liquidation. Hongkong & Shanghai banking Corporation was a creditor of that firm to the extent of several hundred thousand pesos and claimed to have a creditor's lien in the nature of a pledge over certain properties of the debtor. Bank began a civil action against Alejandro, Mercedes, Aldecoa & Co., and the firm known as Viuda e Hijos de Escaño. • A certain undertaking in favor of Aldecoa & Co. had been pledged to the bank to secure the indebtedness of Aldecoa & Co., but that this obligation had been wrongfully transferred by Alejandro into an obligation in favor in Mercedes to the prejudice of the bank. • Aldecoa & Co. began a civil action against Alejandro S. Macleod and others for the recovery of certain shares of stock basing its right to recover upon alleged criminal misconduct of Alejandro in his management of the firm's affairs. Knowing that criminal complaints would be filed against him, Alejandro went to Macao (Portuguese colony) a territory not covered by the extradition treaty between US and Portuguese. Aldecoa filed a complaint against Alejandro for • Falsification of commercial document. The GPR requested the Portuguese government for extradition but this was denied • Embezzlement Aldecoa & Co. and the bank, on the settlement, insisted upon the conveyance not only of all the property of Alejandro but also of at least a portion of the property claimed by Mercedes. • Alejandro's representative did not resist but Mercedes resisted with respect to her properties alleging that these were exclusively hers. They met again to try and settle the case • The conditions and terms were to be explained to Mr. Kingcome (son-in-law of Mercedes and businessman) • The explanation was made by Mr. Stephen, the manager of the bank (one of the friends of Mr. Kingcome) but it is contested whether Kingcome communicated such substance to Mercedes before she signed the document

•

•

9.

Reference was made to the British Colony in Manila where Kingcome, Stephen, Alejandro were prominent members and scandal and disgrace will ensure if settlement is not made. Mr. Kingcome got the impression from that interview that Mr. Stephen thought unless the settlement were consummated additional and mortifying misfortunes wound fall upon Alejandro's family.

A long conference was held • If Mercedes accepts, the civil suits against them would be dismissed and criminal charges would be withdrawn • If she refuses, her husband will spend the rest of his life in Macao or be criminally prosecuted • She refused and it was evident no settlement or comprise can be arrived at and just do the best to defend Alejandro.

10. Mercedes and Mr. William (nephew and close friend of Mercedes and Alejandro), now her attorney, talked wherein Mercedes agreed to the terms and authorized William to execute the contract of settlement on her behalf, and after corrections, it was signed. 11. Aldecoa took possession of the properties of Alejandro and Mercedes, and the complaints were withdrawn or dismissed, Alejandro returned to Manila. 12. Mercedes filed a complaint that there was intimidation. ISSUE1: WON the contract can be annulled since Mercedes' consent was obtained due to violence and intimidation? HELD 1: Valid, no duress. Discussion • Contracts which are declared void and of no force upon the ground that they were obtained by fraud, duress, or undue influence are so declared for the reason that the complaining party never really gave his consent thereto. The consent in such case is not in the eye of the law a consent at all. The person has not acted. He has done nothing he was in vinculis(in chains).

Real Duress

Consent given against his wishes or judgment or reluctantly or without hope of profit

Void

Valid Example: A person settles since he injured another. He must make reparation or face the

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 consequences. No difference between one choosing which gives him greater profit and one choosing the lesser evil In this case 1. The elements of duress is lacking. 2. The most that the facts disclose is that the plaintiff was reluctant to relinquish certain rights which she claimed to have in certain property to the end that she might be relieved from litigation then pending against her and that her husband might escape prosecution for crimes alleged to have been committed; and that she persisted for a considerable time in her refusal to relinquish such claimed rights. 3. The fact that she did relinquish them upon such consideration and under such condition does not of itself constitute duress or intimidation, nor does it destroy the obligatory effect and force of her consent. 4. Duress needs more than that – she must have acted from fear and not from judgment. ISSUE2: WON the cases cited by plaintiff is applicable? HELD2: NO, not applicable. 1. 2.

3. 4. 5.

In those cases there was no time within which to deliberate the matter as it should have been deliberated or take the advice of others or counsel. The treats made to secure the performance of the acts complained of were made directly to the complaining party by the person directly interested or by someone in his behalf who was working in his interest and who had no interest whatever in the welfare of the complaining party. There was no consideration for the performance of the act complained of except immunity from the prosecution threatened. The property transferred or encumbered by the act complained of was the separate property of the person performing the act in which the person for whom the act was performed claimed no interest whatever. There was no dispute as to the title of the property transferred or encumbered, no claim made to it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could be taken for the debts of the husband or of any other person.

The 2 other cases had the benefit of legal advice or friend but none of the other circumstances listed above were present. Basically, the cases cited had material differences with the instant case.

11 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 Usual exaggerations in trade; opportunity to know facts – Article 1340 Laureta Trinidad vs IAC G.R. No. L-65822 Date: December 3, 1991 Ponente: J. Cruz Petitioner: Laureta Trinidad Respondent: IAC and Vicente J. Francisco FACTS 1. 2.

3. 4.

5. 6. 7. 8.

9.

The late Vicente owned a house (Bungalow No. 17) at Commonwealth Village, Quezon City. Laureta offered to buy it, inspected the house and examined a vicinity map which shows the drainage canals along the property. • Purchase Price: P70,000 • Downpayment: P17,500 • Balance: 5 equal installments Trinidad paid P5,000 earnest money and possessed it. She heard from neighbors that 2 buyers previously vacated the property due to flooding. She talked to Vincente who assured her flooding would not happen anymore. Assured, she gave the downpayment and they signed the Contract of Conditional Sale. Trinidad paid the first 2 installments but decided not to pay the 3rd due to flooding (5 feet high) Upon returning from US, she asked the City Engineer of QC to inspect the cause of flooding and the result was that it was because the lot is low and is in a narrowed portion of the creek. Trinidad filed her complaint against Francisco alleging that she was induced to enter into the contract of sale because of his misrepresentations. Vicente's Defense: • Trinidad thoroughly inspected the property before deciding to buy it. • Floods were not uncommon in the Greater Manila area, moreover, they are fortuitous events and cannot be imputed to him. CFI Rizal's Decision (Judge Apostol) – In favor of Trinidad • Annulled the contract • Vicente to pay Trinidad

10. IAC's Decision – In favor of Vicente Francisco • Cancelled the contract of conditional sale • Forfeiture of payment by Trinidad in favor of Francisco 11. They appealed and during pendency, Francisco died and was replaced by his heirs. ISSUE1: WON Francisco misrepresented as to warrant rescission of sale and award of damages to Trinidad?

HELD1: No. It has not been satisfactorily established that the private respondent induced the petitioner through false representation to buy the subject property. Assuming that he did make such representations, she is deemed to have accepted them at her own risk and must therefore be responsible for the consequences of her careless credulousness. Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. 1. 2. 3.

4. 5.

6. 7.

It was Trinidad who approached Francisco who never advertised the property to her. She had full opportunity to inspect the premises, including the drainage canal before entering into a contract. She made her appraisal of the property not with the untrained eye of the ordinary prospective buyer but with the experience and even expertise of the licensed real estate broker that she was. If she minimized the presence of the drainage canals, she has only her own negligence to blame. Seeing that the lot was depressed and there was a drainage lot abutting it, she cannot say she was not forewarned of the possibility that the place might be flooded. Notwithstanding the obvious condition of the property, she still decided to buy it. There is no evidence except her own testimony that two previous owners of the property had vacated it because of the floods and that Francisco assured her that the house would not be flooded again. The supposed previous owners were not presented as witnesses and neither were the neighbors. Francisco himself denied having made the alleged assurance. She paid the first 2 installments despite experiencing floods about 1 feet deep. Despite floods, she made decorations.

One who contracts for the purchase of real estate in reliance on the representations and statements of the vendor as to its character and value, but after he has visited and examined it for himself and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that they were false and exaggerated. ISSUE2: WON since the house stands on a portion of a creek, it therefore is outside the commerce of man? HELD2: NO. 1. 2.

The property is registered in the Registry of Deeds of QC and covered by the Torrens Title, which becomes indefeasible upon expiry of 1 year from date of registration. If the title is challenged, it cannot be done collaterally

ISSUE3: WON the contract is cancelled

12

[Obligations and Contracts] 2nd semester, A.Y. 2014-2015 HELD4: NO. 1. 2. 3. 4.

The sale contains the condition that there is automatic rescission upon default. She was not unable to pay but she refused to due to the defects. It is noteworthy that she initiated the complaint and not the other way around. Court feels and so holds that the above-quoted stipulation should not be strictly enforced, to justify the rescission of the contract. To make her forfeit the payments already made by her and at the same time return the property to the private respondents for standing up to what she considered her right would, in our view, be unfair and unconsionable. Justice demands that we moderate the harsh stipulations.

DISPOSITIVE: Contract of Conditional Sale shall be maintained between the parties except that the petitioner shall not return the house to the private respondents. BUT, she will have to pay them the balance of the purchase price with 12% interest. ISSUE5: WON her claim for moral or exemplary damages may be sustained? HELD5: NO. 1.

This is merely a bad bargain, not illegal transaction vitiated by fraud.

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13 Batac, Endaya, Lingat, Santos, Saturnino, Villafuerte, Yee