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Insular Life Assurance Company v.

Asset Builders Cooperation


GR No. 147410, 5 February 2004
FACTS:
Petitioner Insular Life invited construction companies to participate in the bidding of
petitioners Insular Life building in Lucena. Petitioner distributed Bid Documents, Bid
Proposal Forms and Instruction to Bidders, which include the following rules: (a) all bond
proposal shall be accompanied with a bid bond from the Insular General Insurance Co.
equivalent to ten percent of the bid or five percent of the bid in Managers or Cashiers
check payable to Insular Life, (b) the bid shall be valid for 60 days after opening of bids,
and (c) the bidder who had been deemed complying with the requirements shall be
notified in writing to personally appear to execute the Contract Agreements within five
days after receipt of notice of award, and that failure to execute the contract shall
constitute a breach of the agreement, as effected by acceptance of the proposal,
resulting in the nullification of the award, and that the bond offered by the winning bidder
shall be retained by the owner as payment due for liquidated damages.
Respondent Asset Builders, along with 4 other bidders, submitted their bid proposals.
Respondent bound and obliged itself to enter into a Contract with the petitioner within 10
days from notice of the award, with good and sufficient securities for the faithful
compliance thereof. Respondents bid turned out to be lowest among the bidders, as
found by AWIA, the designated project manager. Engineer Espiritu, project coordinator,
recommended that respondent along with two other bidders, be subjected to postqualification proceedings. Petitioner did, and they visited respondents main office and
investigated its past and present projects. Torrijos, from petitioners real property
department, recommended the approval by the BOD of the award of the general
construction to respondent.
Thus, a conference was held between petitioner and respondent, where respondent
agreed to readjust the amount of the bid. Flores, the head of the Real Property
department, signed a Notice to Proceed addressed to the respondent, where the
respondent may start with the construction immediately pending execution of the
Construction Agreement. On the same day Torrijos advised AWIA to inform respondent
of a preconstruction meeting on March 22. Centeno, president of respondent was
informed of the same pursuant to Engineer Sajordas memorandum (sorry, dami talaga
cast members e). Pre-conference meeting was thus held, in which they agreed that the
contract amount will be for P13M, to be completed within 210 days.
A groundbreaking ceremony was held and attended by Centeno, Espiritu and Flores. A
billboard announcing the construction of the building, as well as the name of the
respondent as the contractor was erected on the site.
However, the respondent did not affix its conformity to any Notice of Award, much less
commence its construction of the project. It did not also execute any construction
agreement. Respondent wrote the petitioners a letter informing them that the former
could not undertake the project because the prerequisite paper work and attendant
processing could not be fast-tracked and that, since the previous 2 weeks, prices has
escalated, which rendered its bid unattractive. Petitioner wrote back, saying that due to
the unjust withdrawal of the respondent from the project, despite the award of such

project to them, the petitioner was impelled to engage the services of another contractor,
without prejudice to further action against respondent for damages due to failure to
execute the Contract, pursuant to the Instruction to Bidders.
Petitioner filed a complaint against the respondent for damages with the RTC, but the
latter dismissed the same, ordering petitioner to pay damages to the respondent instead.
CA affirmed, saying that the failure of petitioner to prove that it gave respondent a written
notice of the formers unqualified acceptance of the latters bid, as required in the
Instruction to Bidders, did not give birth to consent. It explained that when the exact
terms desired were not in the offer, any modification or variation therefrom would annul
that offers.
ISSUE:
Was there a valid contract between petitioner and respondent?
HELD:
NO
RATIO:
It is elementary that, being consensual, a contract is perfected by mere consent. From
the moment of a meeting of the offer and the acceptance upon the object and the cause
that would constitute the contract, consent arises. However, the offer must be certain
and the acceptance seasonable and absolute; if qualified, the acceptance would merely
constitute a counteroffer.
Equally important are the three distinct stages of a contract, its preparation or
negotiation, its perfection, and finally, its consummation. Negotiation begins when the
prospective contracting parties manifest their interest in the contract and ends at the
moment of their agreement. The perfection or birth of the contract occurs when they
agree upon the essential elements thereof. The last stage is its consummation, wherein
they fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.
In the case at bar, the parties did not get past the negotiation stage. The events that
transpired between them were indeed initiated by a formal offer, but this policitacin was
merely an imperfect promise that could not be considered a binding commitment. At any
time, either of the prospective contracting parties may stop the negotiation and withdraw
the offer. In the present case, in fact, there was only an offer and a counteroffer that did
not sum up to any final arrangement containing the elements of a contract. Clearly, no
meeting of minds was established. First, only after the bid bond had lapsed were postqualification proceedings, inspections, and credit investigations conducted. Second, the
inter- office memoranda issued by petitioner, as well as other memoranda between it
and its own project manager, were simply documents to which respondent was not privy.
Third, petitioner proposed a counteroffer to adjust respondents bid to accommodate the
wage increase of December 3, 1993. In effect, the rule on the concurrence of the offer
and its acceptance did not apply, because other matters or details in addition to the

subject matter and the consideration would still be stipulated and agreed upon by the
parties. While there was an initial offer made, there was no acceptance; but when there
allegedly came an acceptance that could have had a binding effect, the offer was
already lacking. The offer and its acceptance did not meet to give birth to a contract.
Moreover, the Civil Code provides that no contract shall arise unless its acceptance is
communicated to the offeror. That is, the mere determination to accept the proposal of a
bidder does not constitute a contract; that decision must be communicated to the bidder.
Although consent may be either express or implied, the Instruction to Bidders prepared
by petitioner itself expressly required (1) a formal acceptance and (2) a period within
which such acceptance was to be made known to respondent. The effect of giving the
Notice of Award to the latter would have been the perfection of the contract. No such
acceptance was communicated to respondent; therefore, no consent was given. Without
that express manifestation, as required by the terms of its proposal, there was no
contract. The due execution of documents representing a contract is one thing, but its
perfection is another.

Sps. Paderes v. Court of Appeals


GR No. 147074, 15 July 2005
FACTS:
On September 14, 1982, Manila International Construction Corporation (MICC) executed
a real estate mortgage over 21 registered parcels of land including the improvements
thereon in favor of Banco Filipino Savings and Mortgage Bank (Banco Filipino) in order
to secure a loan of P1,885,000.00. The mortgage was registered with the Registry of
Deeds of Pasay City and annotated on the corresponding transfer certificates of title
(TCTs) covering the properties on December 17, 1982.
The 21 mortgaged properties included two lots, one with an area of 264 square meters,
and the other with an area of 263, both located in the then Municipality of Paraaque
(now Paraaque City) covered by TCT Nos. 61062 and 61078, respectively.
Subsequently or in August 1983, MICC sold the lot covered by TCT No. 61078, together
with the house thereon, to the petitioners in the first case, the Paderes spouses. And on
January 9, 1984, MICC sold the house built on the lot covered by TCT No. 61062 to the
petitioners in the second case, the Bergado spouses, Neither sale was registered,
however. On January 25, 1985, for failure of MICC to settle its obligations, Banco Filipino
filed a verified Petition for the extra-judicial foreclosure of MICCs mortgage. At the
auction sale of the foreclosed properties on March 25, 1985, Banco Filipino submitted a
bid of P3,092,547.82 and was declared the highest bidder. A Certificate of Sale was
issued in its favor which was registered with the Registry of Deeds and annotated on the
corresponding TCTs covering the mortgaged properties on July 29, 1985.
No redemption of the foreclosed mortgage having been made within the reglementary
period, Carlota P. Valenzuela, the then Liquidator of Banco Filipino, filed on October 16,
1987 an ex parte Petition for the issuance of a Writ of Possession of the foreclosed
properties with the Regional Trial Court (RTC) of Makati. After hearing, the Petition was
granted by Order dated September 8, 1988 Branch 59 of the RTC.
On November 7, 1996, copies of the Writ of Possession dated November 5, 1996,
together with a notice addressed to MICC and/or All persons claiming rights under
them to voluntarily vacate the premises within 7 days from receipt thereof, were served
on petitioners.
Instead of vacating the two lots, however, petitioners filed separate petitions before the
Court of Appeals, docketed as CA-G.R. Numbers 42470 and 42471, which were later,
consolidated, assailing the validity of the Writ of Possession. On September 20, 2000,
the Court of Appeals promulgated its questioned Decision dismissing the consolidated
petitions for lack of merit and upholding the validity of the Writ of Possession.
ISSUE:
Whether or not there was a binding agreement between the petitioners and the bank?
HELD:
NO

RATIO:
Under Article 1318 of the Civil Code, there are three essential requisites which must
concur in order to give rise to a binding contract: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; and (3) cause of the
obligation which is established.
The offer must be definite, complete and intentional. By offer is meant a unilateral
proposition which one party makes to the other for the celebration of the contract. There
is an offer in the context of Article 1319 only if the contract can come into existence by
the mere acceptance of the offeree, without any further act on the part of the offeror.
Hence, the offer must be definite, complete and intentional.
To produce a contract, the acceptance must not qualify the terms of the offer. There is no
acceptance sufficient to produce consent, when a condition in the offer is removed, or a
pure offer is accepted with a condition, or when a term is established, or changed, in the
acceptance, or when a simple obligation is converted by the acceptance into an
alternative one; in other words, when something is desired which is not exactly what is
proposed in the offer. It is necessary that the acceptance be unequivocal and
unconditional, and the acceptance and the proposition shall be without any variation
whatsoever; and any modification or variation from the terms of the offer annuls the latter
and frees the offeror.
A reading of the above-quoted correspondence reveals the absence of both a definite
offer and an absolute acceptance of any definite offer by any of the parties.
The letters dated October 17, 1996 and November 4, 1996, signed by petitioners
counsel, while ostensibly proposing to redeem the foreclosed properties and requesting
Banco Filipino to suggest a price for their repurchase, made it clear that any proposal by
the bank would be subject to further action on the part of petitioners. The letter dated
October 25, 1996 signed by Luz Dacasin, Assistant Vice-President of Banco Filipino,
merely invited petitioners to engage in further negotiations and does not contain a
recognition of petitioners claimed right of redemption or a definite offer to sell the subject
properties back to them.
Petitioners emphasize that in item No. 3 of their letter dated November 8, 1996 they
committed to subject the properties (house and lot) to a real-estate mortgage with the
bank so that the amount to be loaned will be used as payment of the properties to be
redeemed. It is clear from item No. 1 of the same letter, however, that petitioners did not
accept Banco Filipinos valuation of the properties at P7,500.00 per square meter and
intended to have the amount [renegotiated].
Moreover, while purporting to be a memorandum of the matters taken up in the
conference between petitioners and Banco Filipino Vice-President Dacasin, petitioners
letter of November 8, 1996 does not contain the concurrence of Ms. Dacasin or any
other authorized agent of Banco Filipino. Where only one party signed the alleged
contract document and the record shows that the other party did not execute or sign the
same, there is no perfected contract.
Villanueva v. Court of Appeals

GR No. 114870, 26 May 1995


FACTS:
The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husbands sojourn in the United
States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose
Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan
from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as
collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres
Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2)
disputed lots, which she did but without the signature of her husband Celestino. Miguela
Villanueva, however, never got the loan she was expecting. Subsequent attempts to
contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new
titles over the two (2) lots were already issued in the name of the PVB. It appeared upon
inquiry from the Registry of Deeds that the original titles of these lots were canceled and
new ones were issued to Jose Viudez, which in turn were again canceled and new titles
issued in favor of Andres Sebastian, until finally new titles were issued in the name of
PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in
the name of Andres Sebastian. Miguela Villanueva sought to repurchase the lots from
the PVB after being informed that the lots were about to be sold at auction. The PVB told
her that she can redeem the lots for the price of P110,416.00. The filing of liquidation
proceedings against the PVB on August of 1985 nevertheless stalled negotiations for the
repurchase of the lots. Plaintiff-appellant [Ong] on the other hand expounds on his claim
over the disputed lots.
In October 1984, plaintiff-appellant offered to purchase two pieces of land that had been
acquired by PVB through foreclosure. To back-up plaintiff-appellants offer he deposited
the sum of P10,000.00. In 23 November 1984, while appellant was still abroad, PVB
approved his subject offer under Board Resolution No. 10901-84. Among the conditions
imposed by PVB is that: The purchase price shall be P110,000.00 (less deposit of
P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer.
In mid-April 1985, appellant returned to the country. He immediately verified the status of
his offer with the PVB, now under the control of CB, where he was informed that the
same had already been approved. On 16 April 1985, appellant formally informed CB of
his desire to pay the subject balance provided the bank should execute in his favor the
corresponding deed of conveyance. The letter was not answered.
Plaintiff-appellant sent follow-up letters that went unheeded, the last of which was on 21
May 1987. On 26 May 1987, appellants payment for the balance of the subject
properties were accepted by CB under Official Receipt #0816.
On 17 September 1987, plaintiff-appellant through his counsel sent a letter to CB
demanding for the latter to execute the corresponding deed of conveyance in favor of
appellant. CB did not bother to answer the same. While appellants action for specific
performance against CB was pending, Miguela Villanueva and her children filed their
claims with the liquidation court.
ISSUE:

Whether or not the Petitioners have a better right in the purchase of the two parcels of
land.
HELD:
YES
RATIO:
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. The
reason for this is that: The contract is not perfected except by the concurrence of two
wills, which exist and continue until the moment that they occur. The contract is not yet
perfected at any time before acceptance is conveyed; hence, the disappearance of
either party or his loss of capacity before perfection prevents the contractual tie from
being formed.
In a nutshell, the insolvency of a bank and the consequent appointment of a receiver
restrict the banks capacity to act, especially in relation to its property. Applying Article
1323 of the Civil Code, Ongs offer to purchase the subject lots became ineffective
because the PVB became insolvent before the banks acceptance of the offer came to
his knowledge. Hence, the purported contract of sale between them did not reach the
stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his
bid as basis for his alleged right to buy the disputed properties.

Sanchez v. Rigos

FACTS:
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument, entitled Option to Purchase, whereby Mrs.
Rigos agreed, promised and committed x x x to sell to Sanchez, for the sum of
P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of
Title No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed terminated and elapsed. if Sanchez
shall fail to exercise his right to buy the property within the stipulated period. Inasmuch
as several tenders of payment of the sum of P1,510.00. made by Sanchez within said
period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the latter
the present action, for specific performance and damages.
After the filing of defendants answer admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract
between the parties is a unilateral promise to sell, and the same being unsupported by
any valuable consideration, by force of the New Civil Code, is null and void, on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered
judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by
him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was,
likewise, sentenced to pay P200.00, as attorneys fees, and the costs.
ISSUE:
Whether or not the refusal of the respondent to comply with the unilateral promise was
valid.
HELD:
NO
RATIO:
Article 1354 of the Civil Code, which presumes the existence of a consideration in every
contract, applies to contracts in general, whereas the second paragraph of Article 1479
thereof refers to sales in particular, and, more specifically, to an accepted unilateral
promise to buy or to sell. It is Article 1479 that controls defendants unilateral promise to
sell her property to the plaintiff.
In order that said unilateral promise may be binding upon the promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be supported by a
consideration distinct from the price. Accordingly, the promisee cannot compel the
promisor to comply with the promise, unless the former establishes the existence of said
distinct consideration. In other words, the promisee has the burden of proving such
consideration.

In accepted unilateral promise to sell, 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.
While the law permits the offeror to withdraw the offer at any time before acceptance
even before the period has expired, some writers hold the view, that the offeror cannot
exercise this right in an arbitrary or capricious manner. This is upon the principle that an
offer implies an obligation on the part of offeror to maintain it for such length of time as to
permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily
revoke the offer without being liable for damage which the offeree may suffer. A contrary
view would remove the stability and security of business transactions.
In the present case the trial court found that the Plaintiff (Nicolas Sanchez) had offered
the sum of P1,510.00 before any withdrawal from the contract has been made by the
Defendant (Severina Rigos).Since Rigos offer to sell was accepted by Sanchez, before
she could withdraw her offer, a bilateral reciprocal contract to sell and to buy was
generated.

Serra v. Court of Appeals


GR No. 103338, 4 January 1994

FACTS:
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St.,
Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch
in Masbate, Masbate, negotiated with petitioner for the purchase of the then
unregistered property. On May 20, 1975, a contract of Lease with Option to Buy was
instead forged by the parties.
Pursuant to said contract, a building and other improvements were constructed on the
land, which housed the branch office of RCBC in Masbate, Masbate. Within three years
from the signing of the contract, petitioner complied with his part of the agreement by
having the property registered, and placed under the TORRENS SYSTEM, for which the
Register of Deeds of the Province of Masbate issued Original Certificate of Title No. 0232.
Petitioner alleges that as soon as he had the property registered he kept on pursuing the
manager of the branch to effect the sale of the lot as per their agreement. It was not until
September 4, 1984, however, when the respondent bank decided to exercise its option
and informed petitioner, through a letter, of its intention to buy the property at the agreed
price of not greater than P210.00 per square meter or a total of P78,430.00. But much to
the surprise of respondent, petitioner replied that he is no longer selling the property.
ISSUE:
Whether or not the refusal of the respondent to comply with the unilateral promise was
valid.
HELD:
NO.
RATIO:
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a
certain period to accept, the offer may be withdrawn at anytime before acceptance by
communicating such withdrawal, except when the option is founded upon consideration,
as something paid or promised. On the other hand, Article 1479 of the Code provides
that an accepted unilateral promise to buy and sell a determinate thing for a price certain
is binding upon the promisor if the promise is supported by a consideration distinct from
the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to
buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which is determinate and
the price which is certain. In which case, the parties may then reciprocally demand
performance. Jurisprudence has taught us that an optional contract is a privilege existing
only in one party, the buyer. For a separate consideration paid, he is given the right to

decide to purchase or not, a certain merchandise or property, at any time within the
agreed period, at a fixed price. This being his prerogative, he may not be compelled to
exercise the option to buy before the time expires.
In the other hand, what may be regarded as a consideration separate from the price is
discussed in the case of Vda. de Quirino v. Palarca wherein the facts are almost on all
fours with the case at bar. The said case also involved a lease contract with option to
buy where we had occasion to say that the consideration for the lessors obligation to
sell the leased premises to the lessee, should he choose to exercise his option to
purchase the same, is the obligation of the lessee to sell to the lessor the building and/or
improvements constructed and/or made by the former, if he fails to exercise his option to
buy said premises. In the present case, the consideration is even more onerous on the
part of the lessee since it entails, transferring of the building and/or improvements on the
property to petitioner, should respondent bank fail to exercise its option within the period
stipulated.

Tuazon v. Suarez
GR No. 168325, 13 December 2010

FACTS:
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of
land, containing more or less an area of 1,211 square meters located along Tandang
Sora Street, Barangay Old Balara, Quezon City and previously covered by Transfer
Certificate of Title (TCT) No. RT- 56118 issued by the Registry of Deeds of Quezon City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a
Contract of Lease over the abovementioned parcel of land for a period of three years.
The lease commenced in March 1994 and ended in February 1997. During the effectivity
of the lease, Lourdes sent a letter dated January 2, 1995 to Roberto where she offered
to sell to the latter subject parcel of land. She pegged the price at P37,541,000.00 and
gave him two years from January 2, 1995 to decide on the said offer.
On June 19, 1997, or more than four months after the expiration of the Contract of
Lease, Lourdes sold subject parcel of land to her only child, Catalina Suarez-De Leon,
her son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De Leon and
Rommel S. De Leon (the De Leons), for a total consideration of only P2,750,000.00 as
evidenced by a Deed of Absolute Sale executed by the parties. TCT No. 177986 was
then issued by the Registry of Deeds of Quezon City in the name of the De Leons.
The new owners through their attorney-in-fact, Guillerma S. Silva, notified Roberto to
vacate the premises. Roberto refused hence, the De Leons filed a complaint for Unlawful
Detainer before the Metropolitan Trial Court (MeTC) of Quezon City against him. On
August 30, 2000, the MeTC rendered a Decision ordering Roberto to vacate the property
for non-payment of rentals and expiration of the contract.
ISSUE:
Whether or not the conveyance of property by the respondent to her daughter was valid?
HELD:
RATIO:
From the foregoing, it is thus clear that an option contract is entirely different and distinct
from a right of first refusal in that in the former, the option granted to the offeree is for a
fixed period and at a determined price. Lacking these two essential requisites, what is
involved is only a right of first refusal.
It is clear from the provision of Article 1324 that there is a great difference between the
effect of an option which is without a consideration from one which is founded upon a
consideration. If the option is without any consideration, the offeror may withdraw his
offer by communicating such withdrawal to the offeree at anytime before acceptance; if it
is founded upon a consideration, the offeror cannot withdraw his offer before the lapse of
the period agreed upon.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of
Lourdes as he negotiated for a much lower price. Robertos act of negotiating for a much
lower price was a counter-offer and is therefore not an acceptance of the offer of
Lourdes. Article 1319 of the Civil Code provides: Consent is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.

Davies Inc. v. Court of Appeals


GR No. 128066, 19 June 2000

FACTS:
The controversy started in 1992 at the height of the power crisis, which the country was
then experiencing. To remedy and curtail further losses due to the series of power
failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to
install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina
City.
Sometime in November 1992 a 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 who attended the prebidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS
SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER
submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as
required. Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO
President Alfonso Po, PUREFOODS confirmed the award of the contract to FEMSCO.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing
terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of
P1,841,187.90 and contractors all-risk insurance policy in the amount of P6,137,293,00
which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a
letter dated 18 December 1992. FEMSCO also made arrangements with its principal and
started the PUREFOODS project by purchasing the necessary materials. PUREFOODS
on the other hand returned FEMSCOs Bidders Bond in the amount of P1,000,000.00,
as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior
Vice President Teodoro L. Dimayuga unilaterally canceled the award as significant
factors were uncovered and brought to (their) attention which dictate (the) cancellation
and warrant a total review and rebid of (the) project. Consequently, FEMSCO protested
the cancellation of the award and sought a meeting with PUREFOODS. 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), which incidentally was not one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to
JARDINE to cease and desist from delivering and installing the two (2) generators at
PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted
interference and inducement. Trial ensued. After FEMSCO presented its evidence,
JARDINE filed a Demurrer to Evidence.

ISSUE:

1. Whether or not there existed a perfected contract between PUREFOODS and


FEMSCO;
2. Granting there existed a perfected contract, whether there is any showing that
JARDINE induced or connived with PUREFOODS to violate the latters contract
with FEMSCO.
HELD:
1.
2.

YES
NO

RATIO:
A contract is defined as a juridical convention manifested in legal form, by virtue of
which one or more persons bind themselves in favor of another or others, or reciprocally,
to the fulfillment of a prestation to give, to do, or not to do. There can be no contract
unless the following requisites concur: (a) consent of the contracting parties; (b) object
certain which is the subject matter of the contract; and, (c) cause of the obligation which
is established. A contract binds both contracting parties and has the force of law
between them.
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. 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.
To resolve the dispute, there is a need to determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS started the process of entering into the
contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that
advertisements for bidders are simply invitations to make proposals, applies.
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 offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the
respective offers.
Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO
constituted acceptance of respondent FEMSCOs offer as contemplated by law. The
tenor of the letter, i.e., This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project could not be more categorical. While the same letter enumerated
certain basic terms and conditions, these conditions were imposed on the performance
of the obligation rather than on the perfection of the contract. Thus, the first condition
was merely a reiteration of the contract price and billing scheme based on the Terms
and Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The
second and third conditions were nothing more than general statements that all items
and materials including those excluded in the list but necessary to complete the project
shall be deemed included and should be brand new. The fourth condition concerned

the completion of the work to be done, i.e., within twenty (20) days from the delivery of
the generator set, the purchase of which was part of the contract. The fifth condition
had to do with the putting up of a performance bond and an all-risk insurance, both of
which should be given upon commencement of the project. The sixth condition related
to the standard warranty of one (1) year. In fine, the enumerated basic terms and
conditions were prescriptions on how the obligation was to be performed and
implemented. They were far from being conditions imposed on the perfection of the
contract.
In Babasa v. Court of Appeals we distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of an
obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party options and/or
remedies to protect his interests.
For all intents and purposes, the contract at that point has been perfected, and
respondent FEMSCOs conforme would only be a mere surplusage. The discussion of
the price of the project two (2) months after the 12 December 1992 letter can be deemed
as nothing more than a pressure being exerted by petitioner PUREFOODS on
respondent FEMSCO to lower the price even after the contract had been perfected.
Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was
haggling for a lower price even after agreeing to the earlier quotation, and was
threatening to unilaterally cancel the contract, which it eventually did. Petitioner
PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice
it to say that purchase orders or POs do not make or break a contract. Thus, even the
tenor of the subsequent letter of petitioner PUREFOODS, i.e., Pure Foods Corporation
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.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in
ordering it to pay moral damages to respondent FEMSCO as it supposedly induced
PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we
find no specific evidence on record to support such perception. Likewise, there is no
showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE
and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE
are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS
to violate its contract with respondent FEMSCO.

Malbarosa v. Court of Appeals


GR No. 125761, 30 April 2003

FACTS:
Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the
group of companies wholly-owned and controlled by respondent S.E.A. Development
Corporation (SEADC). The petitioner Salvador P. Malbarosa was the president and
general manager of Philtectic Corporation, and an officer of other corporations belonging
to the SEADC group of companies. The respondent assigned to the petitioner one of its
vehicles covered by Certificate of Registration No. 04275865 described as a 1982 model
Mitsubishi Gallant Super Saloon, with plate number PCA 180 for his use. He was also
issued membership certificates in the Architectural Center, Inc. Louis Da Costa was the
president of the respondent and Commonwealth Insurance Co., Inc., while Senen Valero
was the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman
of the Board of Directors of Philtectic Corporation.
Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his
desire from the SEADC group of companies and requested that his 1989 incentive
compensation as president of Philtectic Corporation be paid to him. On January 8, 1990,
the petitioner sent a letter to Senen Valero tendering his resignation, effective February
28, 1990 from all his positions in the SEADC group of companies, and reiterating therein
his request for the payment of his incentive compensation for 1989.
Louis Da Costa met with the petitioner on two occasions, one of which was on February
5, 1990 to discuss the amount of the 1989 incentive compensation petitioner was
entitled to, and the mode of payment thereof. Da Costa ventured that the petitioner
would be entitled to an incentive compensation in the amount of around P395,000.
On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer
addressed to the petitioner stating therein that petitioners resignation from all the
positions in the SEADC group of companies had been accepted by the respondent, and
that he was entitled to an incentive compensation in the amount of P251,057.67, and
proposing that the amount be satisfied.
The respondent required that if the petitioner agreed to the offer, he had to affix his
conformity on the space provided therefor and the date thereof on the right bottom
portion of the letter On March 16, 1990, Da Costa met with the petitioner and handed to
him the original copy of the March 14, 1990. Letter-offer for his consideration and
conformity. The petitioner was dismayed when he read the letter and learned that he was
being offered an incentive compensation of only P251,057.67. He told Da Costa that he
was entitled to no less than P395,000 as incentive compensation. The petitioner refused
to sign the letter-offer on the space provided therefor. He received the original of the
letter and wrote, on the duplicate copy of the letter offer retained by Da Costa, the
words: Recd original for review purposes. Despite the lapse of more than two weeks,
the respondent had not received the original of the March 14, 1990 Letter-offer of the
respondent with the conformity of the petitioner on the space provided therefor.
The respondent decided to withdraw its March 14, 1990 Offer. On April 3, 1996, the
Board of Directors of the respondent approved a resolution authorizing the Philtectic
Corporation and/or Senen Valero to demand from the petitioner for the return of the car
and to take such action against the petitioner including the institution of an action in court

against the petitioner for the recovery of the motor vehicle.


On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner
withdrawing the March 14, 1990 Letter-offer of the respondent and demanding that the
petitioner return the car and his membership certificate in the Architectural Center, Inc.
within 24 hours from his receipt thereof. The petitioner received the original copy of the
letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the
latter that he cannot comply with said demand as he already accepted the March 14,
1990 Letter-offer of the respondent when he affixed on March 28, 1990 his signature on
the original copy of the letter-offer. The petitioner enclosed a xerox copy of the original
copy of the March 14, 1990 Letter-offer of the respondent, bearing his signature on the
space provided therefore dated March 28, 1990.With the refusal of the petitioner to
return the vehicle, the respondent, as plaintiff, filed a complaint against the petitioner, as
defendant, for recovery of personal property with replevin with damages and attorneys
fees
ISSUE:
1. Whether or not there was valid acceptance of the Letter-Offer?
2. Whether or not there was an effective withdrawal of the Letter Offer?
HELD:
1. NO
2. YES
RATIO:
Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:
Art. 1318. There is no contract unless the following requisites concur: (1) Consent of the
contracting parties; (2) Object certain which is the subject matter of the contract; (3)
Cause of the obligation which is established.
Under Article 1319 of the New Civil Code, the consent by a party is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. An offer may be reached at any time until it is accepted. An offer
that is not accepted does not give rise to a consent. The contract does not come into
existence. To produce a contract, there must be acceptance of the offer which may be
express or implied but must not qualify the terms of the offer. The acceptance must be
absolute, unconditional and without variance of any sort from the offer.
The acceptance of an offer must be made known to the offeror. Unless the offeror knows
of the acceptance, there is no meeting of the minds of the parties, no real concurrence of
offer and acceptance. The offeror may withdraw its offer and revoke the same before
acceptance thereof by the offeree. The contract is perfected only from the time an
acceptance of an offer is made known to the offeror. If an offeror prescribes the
exclusive manner in which acceptance of his offer shall be indicated by the offeree, an
acceptance of the offer in the manner prescribed will bind the offeror. On the other hand,
an attempt on the part of the offeree to accept the offer in a different manner does not

bind the offeror as the absence of the meeting of the minds on the altered type of
acceptance. An offer made inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected only
upon knowledge by the offeror of the express acceptance by the offeree of the offer. An
acceptance, which is not made in the manner prescribed by the offeror, is not effective
but constitutes a counter-offer which the offeror may accept or reject. The contract is not
perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of
the offeror is the first to reach the offeree. The acceptance by the offeree of the offer
after knowledge of the revocation or withdrawal of the offer is inefficacious. The
termination of the contract when the negotiations of the parties terminate and the offer
and acceptance concur, is largely a question of fact to be determined by the trial court.
The petitioners plaint that he was not accorded by the respondent reasonable time to
accept or reject its offer does not persuade. It must be underscored that there was no
time frame fixed by the respondent for the petitioner to accept or reject its offer. When
the offeror has not fixed a period for the offeree to accept the offer, and the offer is made
to a person present, the acceptance must be made immediately.
Implicit in the authority given to Philtectic Corporation to demand for and recover from
the petitioner the subject car and to institute the appropriate action against him to
recover possession of the car is the authority to withdraw the respondents March 14,
1990 Letter-offer. It cannot be argued that respondent authorized Philtectic Corporation
to demand and sue for the recovery of the car and yet did not authorize it to withdraw its
March 14, 1990 Letter-offer to the petitioner. Besides, when he testified, Senen Valero
stated that the April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his
instruction and conformably with the aforesaid resolution of the Board of Directors of the
respondent.

Francisco v. Herrera
GR No. 139982, 21 November 2002

FACTS:
Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one
consisting of 500 sq. m. and another consisting of 451 sq. m., covered by Tax
Declaration (TD) Nos. 01-00495 and 01-00497, respectively.
Both were located at Barangay San Andres, Cainta, Rizal. On January 3, 1991,
petitioner bought from said landowner the first parcel, covered by TD No. 01-00495, for
the price of P1,000,000, paid in installments from November 30, 1990 to August 10,
1991.On March 12, 1991, petitioner bought the second parcel covered by TD No. 0100497, for P750,000.Contending that the contract price for the two parcels of land was
grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio
Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase
the purchase price. When petitioner refused, herein respondent then filed a complaint for
annulment of sale, with the RTC of Antipolo City, docketed as Civil Case No. 92-2267. In
his complaint, respondent claimed ownership over the second parcel, which is the lot
covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since 1973. He
likewise claimed that the first parcel, the lot covered by TD No. 01-00495, was subject to
the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr.,
considering that she died intestate on April 2, 1990, before the alleged sale to petitioner.
Finally, respondent also alleged that the sale of the two lots was null and void on the
ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a
contract because he was already afflicted with senile dementia, characterized by
deteriorating mental and physical condition including loss of memory.
In his answer, petitioner as defendant below alleged that respondent was estopped from
assailing the sale of the lots. Petitioner contended that respondent had effectively ratified
both contracts of sales, by receiving the consideration offered in each transaction.
ISSUE:
Whether or not the assailed contracts are merely voidable and hence capable of being
ratified.
HELD:
YES
RATIO:
A void or inexistent contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and cannot be validated either
by the passage of time or by ratification. There are two types of void contracts: (1) those
where one of the essential requisites of a valid contract as provided for by Article 1318 of
the Civil Code is totally wanting; and (2) those declared to be so under Article 1409 of
the Civil Code. By contrast, a voidable or annullable contract is one in which the
essential requisites for validity under Article 1318 are present, but vitiated by want of
capacity, error, violence, intimidation, undue influence, or deceit.

Article 1318 of the Civil Code states that no contract exists unless there is a concurrence
of consent of the parties, object certain as subject matter, and cause of the obligation
established. Article 1327 provides that insane or demented persons cannot give consent
to a con tract. But, if an insane or demented person does enter into a contract, the legal
effect is that the contract is voidable or annullable as specifically provided in Article
1390. In the present case, it was established that the vendor Eligio, Sr. entered into an
agreement with petitioner, but that the formers capacity to consent was vitiated by
senile dementia. Hence, we must rule that the assailed contracts are not void or
inexistent per se; rather, these are contracts that are valid and binding unless annulled
through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification, which can be
express or implied. Implied ratification may take the form of accepting and retaining the
benefits of a contract. This is what happened in this case. Respondents contention that
he merely received payments on behalf of his father merely to avoid their misuse and
that he did not intend to concur with the contracts is unconvincing. If he was not
agreeable with the contracts, he could have prevented petitioner from delivering the
payments, or if this was impossible, he could have immediately instituted the action for
reconveyance and have the payments consigned with the court. None of these
happened. As found by the trial court and the Court of Appeals, upon learning of the
sale, respondent negotiated for the increase of the purchase price while receiving the
installment payments. It was only when respondent failed to convince petitioner to
increase the price that the former instituted the complaint for reconveyance of the
properties. Clearly, respondent was agreeable to the contracts, only he wanted to get
more. Further, there is no showing that respondent returned the payments or made an
offer to do so. This bolsters the view that indeed there was ratification. One cannot
negotiate for an increase in the price in one breath and in the same breath contend that
the contract of sale is void.

Sps. Theis v. Court of Appeals


GR No. 126013, 12 February 1997

FACTS:
Private respondent Calsons Development Corporation is the owner of three (3) adjacent
parcels of land covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in
the location map), 15516 (parcel no. 2) and 15684 (parcel no. 3), with the area of 1,000
square meters, 226 square meters and 1,000 square meters, respectively. All three
parcels of land are situated along Ligaya Drive, Barangay Francisco, Tagaytay City.
Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant lot
denominated as parcel no. 4.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots
covered by TCT No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2,
respectively, remained idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house
stands, was erroneously indicated to be covered not by TCT No. 15684 but by TCT No.
15515, while the two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to be
located on parcel no. 4 instead (which was not owned by private respondent) and
covered by TCT Nos. 15516 and 15684.
On October 26, 1987, unaware of the mistake by which private respondent appeared to
be the owner of parcel no. 4 as indicated in the erroneous survey, and based on the
erroneous information given by the surveyor that parcel no. 4 is covered by TCT No.
15516 and 15684, private respondent, through its authorized representative, one Atty.
Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.
Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and
15684 to petitioners who, on October 28, 1987, immediately registered the same with
the Registry of Deeds of Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names
of the petitioners were issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The
actual price agreed upon and paid, however, was P486,000.00. This amount was not
immediately paid to private respondent; rather, it was deposited in escrow in an interestbearing account in its favor with the United Coconut Planters Bank in Makati City. The
P486,000.00 in escrow was released to, and received by, pri
vate respondent on December 4, 1987.
Thereafter, petitioners did not immediately occupy and take possession of the two (2)
idle parcels of land purchased from private respondent. Instead, petitioners went to
Germany.
In the early part of 1990, petitioners returned to the Philippines. Another person owned
when they went to Tagaytay to look over the vacant lots and to plan the construction of
their house thereon, they discovered that parcel no. 4. They also discovered that the lots
actually sold to them were parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684,
respectively. Parcel no. 3 however, could not have been sold to the petitioners by the
private respondents as a two-storey house, the construction cost of which far exceeded
the price paid by the petitioners, had already been built thereon even prior to the

execution of the contract between the disputing parties.


Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel
no. 3, and persisted in claiming that it was parcel no. 4 that private respondent sold to
them. However, private respondent could not have possibly sold the same to them for it
did not own parcel no. 4 in the first place.
The mistake in the identity of the lots is traceable to the erroneous survey conducted in
1985.
To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT
Nos. 15515 and 15516, respectively, as these two were precisely the two vacant lots
which private respondent owned and intended to sell when it entered into the transaction
with petitioners. Petitioners adamantly rejected the good faith offer. They refused to yield
to reason and insisted on taking parcel no. 3, covered by TCT No. 155864 and upon
which a two-storey house stands, in addition to parcel no. 2, covered by TCT No. 15516,
on the ground that these TCTs have already been cancelled and new ones issued in
their name.
Such refusal of petitioners prompted private respondent to make another offer, this time,
the return of an amount double the price paid by petitioners. Petitioners still refused and
stubbornly insisted in their stand.
Private respondent was then compelled to file an action for annulment of deed of sale
and reconveyance of the properties subject thereof in the Regional Trial Court.The trial
court rendered judgment in favor of private respondent. Identifying the core issue in the
instant controversy to be the voidability of the contract of sale between petitioners and
private respondent on the ground of mistake, the trial ourt annulled said contract of sale
after finding that there was indeed a mistake in the identification of the parcels of land
intended to be the subject matter of said sale.
ISSUE:
Whether or not the contract between the parties is voidable on the grounds of mistake.
HELD:
YES.
RATIO:
In the case at bar, the private respondent obviously committed an honest mistake in
selling parcel no. 4. As correctly noted by the Court of Appeals, it is quite impossible for
said private respondent to sell the lot in question as the same is not owned by it. The
good faith of the private respondent is evident in the fact that when the mistake was
discovered, it immediately offered two other vacant lots to the petitioners or to reimburse
them with twice the amount paid. That petitioners refused either option left the private
respondent with no other choice but to file an action for the annulment of the deed of
sale on the ground of mistake. As enunciated in the case of Mariano vs. Court of

Appeals: A contract may be annulled where the consent of one of the contracting
parties was procured by mistake, fraud, intimidation, violence, or undue influence.
Art. 1331 of the New Civil Code provides for the situa tions whereby mistake may
invalidate consent. It states: Art. 331. 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.
Tolentino explains that the concept of error in this article must include both ignorance,
which is the absence of knowledge with respect to a thing, and mistake properly
speaking, which is a wrong conception about said thing, or a belief in the existence of
some circumstances, fact, or event, which in reality does not exist. In both cases, there
is a lack of full and correct knowledge about the thing. The mistake committed by the
private respondent in selling parcel no. 4 to the petitioners falls within the second type.
Verily, such mistake invalidated its consent and as such, annulment of the deed of sale
is proper.

Hemedes v. Court of Appeals


GR No. 107132, 8 October 1999

FACTS:
The disagreement involves a question of ownership over an unregistered parcel of land.
The late Jose Hemedes originally owned the land, father of Maxima Hemedes and
Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document entitled
Donation Inter Vivos With Resolutory Conditions whereby he conveyed ownership over
the subject land, together with all its improvements, in favor of his third wife, Justa
Kausapin. Maxima Hemedes, through her counsel, filed an application for registration
and confirmation of title over the subject unregistered land. Subsequently, an Original
Certificate of Title (OCT) was issued in the name of Maxima Hemedes married to Raul
Rodriguez by the Registry of Deeds of Laguna on June 8, 1962, with the annotation that
Justa Kausapin shall have the usufructuary rights over the parcel of land herein
described during her lifetime or widowhood. However, Enrique D. Hemedes
subsequently sold the property to Dominium Realty and Construction Corporation
(Dominium). Justa Kausapin also executed and affidavit confirming the conveyance of
the subject property in favor of Enrique D. Hemedes as embodied in the Kasunduan
dated May 27, 1971, and at the same time denying the conveyance made to Maxima
Hemedes.
A complaint was filed by Enrique D. Hemedes for the annullment of the TCT issued in
favor of R&B Insurance and/or the reconveyance to Dominium of the subject property.
Specifically, the complaint alleged that Dominium has become the absolute owner of the
subject property by virtue of the February 28, 1979 deed of sale executed by Enrique D.
Hemedes, who in turn obtained ownership of the land from Justa Kausapin, as
evidenced by the Kasunduan. The Plaintiffs contend that Justa Kausapin never
transferred the land to Maxima Hemedes and that Enrique D. Hemedes had no
knowledge of the registration proceedings initiated by Maxima Hemedes.
The trial court rendered judgment in favor of the plaintiffs Dominium and Enrique D.
Hemedes. Both R&B Insurance and Maxima Hemedes appealed from the trial courts
decision. The Court of Appeals affirmed the assailed decision in toto.
ISSUE:
Whether or not the conveyance by Justa Kausapin in favour of Enrique D. Hemedes
transferred ownership over the subject land?
HELD:
NO
RATIO:
The Supreme Court held that petitioner R & B Insurances assertion of ownership over
the property in dispute, as evidenced by TCT No. 41985, subject to the usufructuary
rights of Justa Kausapin, which encumbrance has been properly annotated upon the
said certificate of title.
The finding of the public respondents that the Deed of Conveyance of Unregistered

Real Property By Reversion executed by Justa Kausapin in favor of Maxima Hemedes


is false and not supported by the factual findings in this case. It is grounded upon the
mere denial of the same by Justa Kausapin.
A party to a contract cannot just evade compliance with his contractual obligations by the
simple expedient of denying the execution of such contract. If, after a perfect and binding
contract has been executed between the parties, it occurs to one of them to allege some
defect therein as a reason for annulling it, the alleged defect must be conclusively
proven, since the validity and fulfillment of contracts cannot be left to the will of one of
the contracting parties. In upholding the deed of conveyance in favor of Maxima
Hemedes, the Court must concomitantly rule that Enrique D. Hemedes and his
transferee, Dominium, did not acquire any rights over the subject property.
Justa Kausapin sought to transfer to her stepson exactly what she had earlier
transferred to Maxima Hemedes the ownership of the subject property pursuant to the
first condition stipulated in the deed of donation executed by her husband. Thus, the
donation in favor of Enrique D. Hemedes is null and void for the purported object thereof
did not exist at the time of the transfer, having already been transferred to his sister.
Similarly, the sale of the subject property by Enrique D. Hemedes to Dominium is also a
nullity for the latter cannot acquire more rights than its predecessor-in-interest and is
definitely not an innocent purchaser for value since Enrique D. Hemedes did not present
any certificate of title upon which it relied.

Leonardo v. Court of Appeals


GR No. 125485, 13 September 2004

FACTS:
Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina
Paul and Balbino Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as
well as the late Eduvigis and Dominador, all surnamed Sebastian, are the illegitimate
children of Tomasina with Jose Sebastian after she separated from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina
Paul and Jose Sebastian before Branch 57, RTC of San Carlos City, Pangasinan,
petitioner alleged that, on June 24, 1988, at around 5:00 p.m., private respondent
Corazon Sebastian and her niece Julieta Sebastian, and a certain Bitang, came to
petitioners house to persuade her to sign a deed of extrajudicial partition of the estate of
Tomasina Paul and Jose Sebastian. Before signing the document, petitioner allegedly
insisted that they wait for her husband Jose Ramos so he could translate the document
which was written in English. Petitioner, however, proceeded to sign the document even
without her husband and without reading the document, on the assurance of private
respondent Corazon Sebastian that petitioners share as a legitimate daughter of
Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked
private respondent Corazon and her companions to wait for her husband so he could
read the document. When petitioners husband arrived, however, private respondent
Corazon and her companions had left without leaving a copy of the document. It was
only when petitioner hired a lawyer that they were able to secure a copy and read the
contents thereof.
Petitioner refuted private respondents claim that they were the legitimate children and
sole heirs of Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of
petitioners father Balbino Leonardo and Tomasina Paul, the latter remained the lawful
wife of Balbino. Petitioner maintained that no joint settlement of the estate of Jose
Sebastian and Tomasina Paul could be effected since what existed between them was
co- ownership, not conjugal partnership. They were never married to each other. The
extrajudicial partition was therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was deceived into
signing the extrajudicial settlement. She further denied having appeared before Judge
Juan Austria of the Municipal Trial Court (MTC) of Urbiztondo, Pangasinan on July 27,
1988 to acknowledge the execution of the extrajudicial partition.
Private respondents, in their answer with counterclaim, raised the defense of lack of
cause of action. They insisted that the document in question was valid and binding
between the parties. According to them, on July 27, 1988, they personally appeared
before Judge Austria of the MTC of Urbiztondo, who read and explained the contents of
the document which all of them, including petitioner, voluntarily signed.
Private respondents contended that their declaration that they were legitimate children of
Jose Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition.
Petitioners act of signing the document estopped her to deny or question its validity.
They moreover averred that the action filed by petitioner was incompatible with her
complaint. Considering that petitioner claimed vitiation of consent, the proper action was
annulment and not declaration of nullity of the instrument.

On July 27, 1989, petitioner filed an amended complaint to include parties to the
extrajudicial partition who were not named as defendants in the original complaint.
During the August 23, 1990 pre-trial conference, no amicable settlement was reached
and the parties agreed that the only issue to be resolved was whether petitioners
consent to the extrajudicial partition was voluntarily given.
In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan
rendered a decision dismissing the complaint as well as the counterclaim. The court a
quo ruled that the element of duress or fraud that vitiates consent was not established
and that the proper action was the reformation of the instrument, not the declaration of
nullity of the extrajudicial settlement of estate. By way of obiter dictum, the trial court
stated that, being a legitimate child, petitioner was entitled to one-half (or 19,282.5
sq.m.) of Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to
her in the assailed extrajudicial partition was therefore less than her correct share as
provided by law. On appeal, the Court of Appeals affirmed the judgment of the trial court
in its May 23, 1996 decision. Hence, this petition for review on certiorari under Rule 45.
ISSUE:
Whether or not the consent given by petitioner to the extrajudicial settlement of estate
was given voluntarily.
HELD:
NO
RATIO:
Contracts where consent is given by mistake or because of violence, intimidation, undue
influence or fraud are voidable. These circumstances are defects of the will, the
existence of which impairs the freedom, intelligence, spontaneity and voluntariness of
the party in giving consent to the agreement. In determining whether consent is vitiated
by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are given a
wide latitude in weighing the facts or circumstances in a given case and in deciding in
favor of what they believe actually occurred, considering the age, physical infirmity,
intelligence, relationship and the conduct of the parties at the time of making the contract
and subsequent thereto, irrespective of whether the contract is in a public or private
writing.
In this case, the presumption of mistake or error on the part of petitioner was not
sufficiently rebutted by private respondents. Private respondents failed to offer any
evidence to prove that the extrajudicial settlement of estate was explained in a language
known to the petitioner, i.e. the Pangasinan dialect. Clearly, petitioner, who only finished
Grade 3, was not in a position to give her free, voluntary and spontaneous consent
without having the document, which was in English, explained to her in the Pangasinan
dialect.
Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents
of the document in the Pangasinan dialect was a reasonable and prudent act that
showed her uncertainty over what was written. Due to her limited educational attainment,
she could not understand the document in English. She wanted to seek assistance rom

her husband who was then out of the house. However, due to the misrepresentation,
deception and undue pressure of her half-sister Corazon Sebastian, petitioner signed
the document. Corazon assured petitioner that she would receive her legitimate share in
the estate of their late mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he
found out that petitioner was deprived of her full legitime. Under the law, petitioners
share should have been one-half of her mothers estate, comprising a total area of
19,282.50 square meters. Under the defective extrajudicial settlement of estate,
however, petitioner was to receive only 7,671.75 square meters. This was a substantial
mistake clearly prejudicial to the substantive interests of petitioner in her mothers estate.
There is no doubt that, given her lack of education, petitioner is protected by Art. 1332 of
the Civil Code. There is reason to believe that, had the provisions of the extrajudicial
agreement been explained to her in the Pangasinan dialect, she would not have
consented to the significant and unreasonable diminution of her rights.

Domingo Realty Inc. v. Court of Appeals


GR No. 126236, 26 January 2007

FACTS:
On November 19, 1981, petitioner Domingo Realty filed its November 15, 1981
Complaint with the Pasay City RTC against Antonio M. Acero, who conducted business
under the firm name A.M. Acero Trading, David Victorio, John Doe, and Peter Doe, for
recovery of possession of three (3) parcels of land located in Cupang, Muntinlupa, Metro
Manila.
The said lots have an aggregate area of 26,705 square meters, more or less, on a
portion of which Acero had constructed a factory building for the manufacture of hollow
blocks, as alleged by Domingo Realty.
On January 4, 1982, defendants Acero and Victorio filed their December 21, 1981
Answer to the Complaint in Civil Case No. 9581-P. Acero alleged that he merely leased
the land from his co-defendant David Victorio, who, in turn, claimed to own the property
on which the hollow blocks factory of Acero stood. In the Answer, Victorio assailed the
validity of the TCTs of Domingo Realty, alleging that the said TCTs emanated from
spurious deeds of sale, and claimed that he and his predecessors-in-interest had been
in possession of the property for more than 70 years.
On December 3, 1987, Mariano Yu representing Domingo Realty, Luis Recato Dy, and
Antonio M. Acero, all assisted by counsels, executed a Compromise Agreement.
On February 2, 1988, respondent Acero filed his January 29, 1988 Motion to Nullify the
Compromise Agreement, claiming that the January 22, 1988 Order authorizing the
survey plan of petitioner Domingo Realty as the basis of a resurvey would violate the
Compromise Agreement since the whole area he occupied would be adjudged as owned
by the realty firm.
On March 18, 1988, Acero filed a Motion to Resurvey, whereby it was alleged that the
parties agreed to have the disputed lots re-surveyed by the Bureau of Lands. Thus, the
trial court issued the March 21, 1988 Orderthe Director of Lands to conduct a re-survey
of the subject properties.
In his June 9, 1989 Report, Elpidio T. De Lara, Chief of the Technical Services Division of
the Lands Management Section of the National Capital Region - Department of
Environment and Natural Resources, submitted to the trial court Verification Survey Plan
No. Vs-13-000135. In the said Verification Survey Plan, petitioners TCTs covered the
entire land occupied by the respondents hollow block factory.On April 10, 1990,
petitioner Ayala Steel Manufacturing Co., Inc. (Ayala Steel) filed its March 30, 1990
Motion for Substitution alleging that it had purchased the subject lots, attaching to the
motion TCT Nos. 152528, 152529, and 152530 all in its name, as proof of purchase.The
said motion was opposed by Acero claiming that this case has already been terminated
in accordance with the compromise agreement of the parties, hence, substitution will no
longer be necessary and justified under the circumstances.
The motion was not resolved which explains why both transferor Domingo Realty and
transferee Ayala Steel are co-petitioners in the instant petition.
In its December 28, 1990 Order, the trial court directed Acero to conduct his own re-

survey of the lots based on the technical description appearing in the TCTs of Domingo
Realty and to have the re-survey plans approved by the Bureau of Lands. The Order
resulted from Aceros contention that he occupied only 2,000 square meters of
petitioners property.
Acero employed the services of Engr. Eligio L. Cruz who came up with Verification
Survey Plan No. Vs-13-000185. However, when the said Verification Survey Plan was
presented to the Bureau of Lands for approval, it was rejected because Engr. Cruz failed
to comply with the requirements of the Bureau.On April 8, 1991, petitioners filed a
Manifestation with Motion praying for the denial of respondents Motion to Nullify the
Compromise Agreement and for the approval of Verification Survey Plan No. Vs-13000135 prepared by Engr. Lara of the Bureau of Lands. The Pasay City RTC issued the
December 6, 1991 Order denying respondent Aceros Motion to Nullify the Compromise
Agreement. As a consequence, petitioners filed a Motion for Execution on December 10,
1991.On January 6, 1992, respondent filed an undated Manifestation claiming, among
others, that it was on record that the Compromise Agreement was only as to a portion of
the land being occupied by respondent, which is about 2,000 square meters, more or
less. He reiterated the same contentions in his December 21, 1991 Manifestation.On
January 13, 1992, respondent filed a Motion to Modify Order Dated 6 December 1991,
claiming that the said Order modified the Compromise Agreement considering that it
allegedly involved only 1,357 square meters and not the entire lot; and if not amended,
the Order would deviate from the principle that no man shall enrich himself at the
expense of the other.
In its January 15, 1992 Order, the trial court approved the issuance of a Writ of
Execution to enforce the December 7, 1987 Decision. On February 3, 1992, respondent
Acero subsequently filed a Motion for Reconsideration of the January 15, 1992 Order
arguing that the Order was premature and that Verification Survey Plan No. Vs-13000135 violated the Compromise Agreement.
On January 18, 1992, the Pasay City Hall was gutted by fire, destroying the records of
the lower court, including those of this case. Thus, after reconstituting the records, the
trial court issued the October 6, 1992 Order, reiterating its January 15, 1992 Order and
ordering the issuance of a Writ of Execution.
On October 23, 1992, respondent filed a Manifestation and Compliance, alleging that
Verification Survey Plan No. Vs-13-000185 had been approved by the Regional Director
of the DENR; thus, he moved for the annulment of the October 6, 1992 Order granting
the Writ of Execution in favor of petitioners.
Given the conflicting Verification Survey Plans of the parties, the trial court issued the
October 11, 1993 Order requiring the Bureau of Lands Director to determine which of the
two survey plans was correct.
Subsequently, Regional Technical Director Eriberto V. Almazan of the Land Registration
Authority issued the November 24, 1993 OrderPlan No. Vs-13-000185, submitted by
Engineer Eligio Cruz, who was hired by respondent Acero, and declared Verification
Survey Plan No. Vs-13-000135, submitted by Engineer Lara of the Bureau of Lands, as
the correct Plan.
Thereafter, petitioners filed their January 12, 1994 Exparte Manifestation with Motion,

praying for the implementation of the Writ of Execution against the disputed lands, which
was granted in the January 12, 1994 cancelling Verification Survey Order.Respondents
Motion for Reconsideration of the January 12, 1994 Order was denied in the February
1,1994 Order of the Pasay City RTC.Aggrieved, respondent Acero filed before the CA
his
February 23, 1994 Petition for Certiorari and Mandamus with Urgent Prayer for Issuance
of a Temporary Restraining Order, under Rule 65 of the Rules of Court, against
petitioners and Judge Sofronio G. Sayo as presiding judge of the lower court. In the
petition, respondent sought to nullify and set aside the RTC Orders dated December 6,
1991, January 15, 1992, October 6, 1992, January 12, 1994, and February 1, 1994, all
of which pertain to the execution of the December 7, 1987 Decision on the Compromise
Agreement. Significantly, respondent did not seek the annulment of said judgment but
merely reiterated the issue that under the Compromise Agreement, he would only be
vacating a portion of the property he was occupying.
ISSUE:
Whether the judgement on compromise agreement should be set-aside on the ground of
mistake.
HELD:
NO
RATIO:
There is no question that a contract where the consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable under Article 1330 of the Civil
Code. If the contract assumes the form of a Compromise Agreement between the parties
in a civil case, then a judgment rendered on the basis of such covenant is final,
unappealable, and immediately executory. If one of the parties claims that his consent
was obtained through fraud, mistake, or duress, he must file a motion with the trial court
that approved the compromise agreement to reconsider the judgment and nullify or set
aside said contract on any of the said grounds for annulment of contract within 15 days
from notice of judgment. Under Rule 37, said party can either file a motion for new trial
or reconsideration. A party can file a motion for new trial based on fraud, accident or
mistake, excusable negligence, or newly discovered evidence.
Articles 2038 and 1330 of the Civil Code allow a party to a contract, on the ground of
mistake, to nullify a compromise agreement, viz.: Article 2038. A compromise, in which
there is mistake, fraud, violence, intimidation, undue influence, or falsity of documents, is
subject to the provisions of Article 1330 of this Code. Article 1330. A contract where the
consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable
Mistake has been defined as a misunderstanding of the meaning or implication of
something or a wrong action or statement proceeding from a faulty judgment x x x.
Article 1333 of the Civil Code of the Philippines however states that there is no mistake

if the party alleging it knew the doubt, contingency or risk affecting the object of the
contract. Under this provision of law, it is presumed that the parties to a contract know
and understand the import of their agreement. Thus, civil law expert Arturo M. Tolentino
opined that: To invalidate consent, the error must be excusable. It must be real error, and
not one that could have been avoided by the party alleging it. The error must arise from
facts unknown to him. He cannot allege an error which refers to a fact known to him, or
which he should have known by ordinary diligent examination of the facts. An error so
patent and obvious that nobody could have made it, or one which could have been
avoided by ordinary prudence, cannot be invoked by the one who made it in order to
annul his contract. A mistake that is caused by manifest negligence cannot invalidate a
juridical act.
Prior to the execution of the Compromise Agreement, respondent Acero was already
aware of the technical description of the titled lots of petitioner Domingo Realty and more
so, of the boundaries and area of the lot he leased from David Victorio. Before
consenting to the agreement, he could have simply hired a geodetic engineer to conduct
a verification survey and determine the actual encroachment of the area he was leasing
on the titled lot of petitioner Domingo Realty. Had he undertaken such a precautionary
measure, he would have known that the entire area he was occupying intruded into the
titled lot of petitioners and possibly, he would not have signed the agreement.
In this factual milieu, respondent Acero could have easily averted the alleged mistake in
the contract; but through palpable neglect, he failed to undertake the measures expected
of a person of ordinary prudence. Without doubt, this kind of mistake cannot be resorted
to by respondent Acero as a ground to nullify an otherwise clear, legal, and valid
agreement, even though the document may become adverse and even ruinous to his
business.
Moreover, respondent failed to state in the Compromise Agreement that he intended to
vacate only a portion of the property he was leasing. Such provision being beneficial to
respondent, he, in the exercise of the proper diligence required, should have made sure
that such matter was specified in the Compromise Agreement. Respondent Aceros
failure to have the said stipulation incorporated in the Compromise Agreement is
negligence on his part and insufficient to abrogate said agreement.

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