[G.R. No. 120554. September 21, 1999]

SO PING BUN, Petitioner, vs. COURT OF APPEALS, TEK HUA ENTERPRISING CORP. and MANUEL C. TIONG,Respondents.

The facts are as follows:

In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a one-year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month-to-month basis.

When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.

So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Gioks grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.

On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees demand. Again on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessees part, and agreement to the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded.

On March 1, 1991, private respondent Tiong sent a letter to petitioner, which reads as follows:

March 1, 1991

Mr. So Ping Bun930 Soler StreetBinondo, Manila

Dear Mr. So,

Due to my closed (sic) business associate (sic) for three decades with your late grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed you temporarily to use the warehouse of Tek Hua Enterprising Corp. for several years to generate your personal business.

Since I decided to go back into textile business, I need a warehouse immediately for my stocks. Therefore, please be advised to vacate all your stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given 14 days to vacate the premises unless you have good reasons that you have the right to stay. Otherwise, I will be constrained to take measure to protect my interest.

Please give this urgent matter your preferential attention to avoid inconvenience on your part.

Very truly yours,

(Sgd) Manuel C. TiongPresident

Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioners request. The lease contracts in favor of Trendsetter were executed.

In the suit for injunction, private respondents pressed for the nullification of the lease contracts between DCCSI and petitioner. They also claimed damages.

After trial, the trial court ruled:

WHEREFORE, judgment is rendered:

1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3, inclusive) all dated March 11, 1991, between defendant So Ping Bun, doing business under the name and style of Trendsetter Marketing, and defendant Dee C. Chuan & Sons, Inc. over the premises located at Nos. 924-B, 924-C, 930 and 930, Int., respectively, Soler Street, Binondo Manila;

2. Making permanent the writ of preliminary injunction issued by this Court on June 21, 1991;

3. Ordering defendant So Ping Bun to pay the aggrieved party, plaintiff Tek Hua Enterprising Corporation, the sum of P500,000.00, for attorneys fees;

4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is concerned, and the respective counterclaims of the defendant;

5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;

This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising Corporation and defendant Dee C. Chuan & Sons, Inc. to negotiate for the renewal of their lease contracts over the premises located at Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila, under such terms and conditions as they agree upon, provided they are not contrary to law, public policy, public order, and morals.

SO ORDERED.

1

Petitioners motion for reconsideration of the above decision was denied.

On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for reconsideration, the appellate court modified the decision by reducing the award of attorneys fees from five hundred thousand (P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.

Petitioner is now before the Court raising the following issues:

I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURTS DECISION FINDING SO PING BUN GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?

II. WHETHER THE APPELLATE COURT ERRED IN AWARDING ATTORNEYS FEES OF P200,000.00 IN FAVOR OF PRIVATE RESPONDENTS.

The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous conduct, particularly unlawful interference with contract. We have to begin, obviously, with certain fundamental principles on torts and damages.

Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or compensation awarded for the damage suffered.[6 One becomes liable in an action for damages for a nontrespassory invasion of anothers interest in the private use and enjoyment of asset if (a) the other has property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the defendants conduct is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and actionable under general negligence rules.[7

The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract; and (3) interference of the third person is without legal justification or excuse.[8

A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delictomay be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property.[9 This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioners Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latters property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case.

Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest.[10 One view is that, as a general rule, justification for interfering with the business relations of another exists where the actors motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferers interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection.[11 Moreover, justification for protecting ones financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others.[12 It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives.[13

As early as Gilchrist vs. Cuddy,[14 we held that where there was no malice in the interference of a contract, and the impulse behind ones conduct lies in a proper business interest rather than in wrongful motives, a party

cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.[15

In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him.

Section 1314 of the Civil Code categorically provides also that, Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Petitioner argues that damage is an essential element of tort interference, and since the trial court and the appellate court ruled that private respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved of any liability, including attorneys fees.

It is true that the lower courts did not award damages, but this was only because the extent of damages was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or impossible to determine the extent of damage and there was nothing on record to serve as basis thereof. In that case we refrained from awarding damages. We believe the same conclusion applies in this case.

While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not transcend the limits forbidding an obligatory award for damages in the absence of any malice. The business desire is there to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the respondents from further damage or injury caused by petitioners interference.

Lastly, the recovery of attorneys fees in the concept of actual or compensatory damages, is allowed under the circumstances provided for in Article 2208 of the Civil Code.[16 One such occasion is when the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.[17 But we have consistently held that the award of considerable damages should have clear factual and legal bases.[18 In connection with attorneys fees, the award should be commensurate to the benefits that would have been derived from a favorable judgment. Settled is the rule that fairness of the award of damages by the trial court calls for appellate review such that the award if far too excessive can be reduced.[19 This ruling applies with equal force on the award of attorneys fees. In a long line of cases we said, It is not sound policy to place a penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions.[20

Considering that the respondent corporations lease contract, at the time when the cause of action accrued, ran only on a month-to-month basis whence before it was on a yearly basis, we find even the reduced amount of attorneys fees ordered by the Court of Appeals still exorbitant in the light of prevailing jurisprudence.[21 Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award for attorneys fees in favor of private respondent corporation.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award of attorneys fees is reduced from two hundred thousand (P200,000.00) to one hundred thousand (P100,000.00) pesos. No pronouncement as to costs.

2

SO ORDERED.

Art. 1314

G.R. No. L-9356             February 18, 1915

C. S. GILCHRIST, plaintiff-appellee, vs.E. A. CUDDY, ET AL., defendants. JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.

An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from a judgment of the Court of First Instance of Iloilo, dismissing their cross-complaint upon the merits for damages against the plaintiff for the alleged wrongful issuance of a mandatory and a preliminary injunction.

Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d of May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a certain cinematograph film called "Zigomar" in compliance with an alleged contract which had been entered into between these two parties, and at the time an ex parte preliminary injunction was issued restraining the appellants from receiving and exhibiting in their theater the Zigomar until further orders of the court. On the 26th of that month the appellants appeared and moved the court to dissolve the preliminary injunction. When the case was called for trial on August 6, the appellee moved for the dismissal of the complaint "for the reason that there is no further necessity for the maintenance of the injunction." The motion was granted without objection as to Cuddy and denied as to the appellants in order to give them an opportunity to prove that the injunction were wrongfully issued and the amount of damages suffered by reason thereof.

The pertinent part of the trial court's findings of fact in this case is as follows:

It appears in this case that Cuddy was the owner of the film Zigomar and that on the 24th of April he rented it to C. S. Gilchrist for a week for P125, and it was to be delivered on the 26th of May, the week beginning that day. A few days prior to this Cuddy sent the money back to Gilchrist, which he had forwarded to him in Manila, saying that he had made other arrangements with his film. The other arrangements was the rental to these defendants Espejo and his partner for P350 for the week and the injunction was asked by Gilchrist against these parties from showing it for the week beginning the 26th of May.

It appears from the testimony in this case, conclusively, that Cuddy willfully violated his contract, he being the owner of the picture, with Gilchrist because the defendants had offered him more for the same period. Mr. Espejo at the trial on the permanent injunction on the 26th of May admitted that he knew that Cuddy was the owner of the film. He was trying to get it through his agents Pathe Brothers in Manila. He is the agent of the same concern in Iloilo. There is in evidence in this case on the trial today as well as on the 26th of May, letters showing that the Pathe Brothers in Manila advised this man on two different occasions not to contend for this film Zigomar because the rental price was prohibitive and assured him also that he could not get the film for about six weeks. The last of these letters was written on the 26th of April, which showed conclusively that he knew they had to get this film from Cuddy and from this letter that the agent in Manila could not get it, but he made Cuddy an offer himself and Cuddy accepted it because he was paying about three times as much as he had contracted with Gilchrist for. Therefore, in the opinion of this court, the defendants failed signally to show the injunction against the defendant was wrongfully procured.

The appellants duly excepted to the order of the court denying their motion for new trial on the ground that the evidence was insufficient to justify the decision rendered. There is lacking from the record before us the deposition of the defendant Cuddy, which apparently throws light upon a contract entered into between him and the plaintiff Gilchrist. The contents of this deposition are discussed at length in the brief of the

appellants and an endeavor is made to show that no such contract was entered into. The trial court, which had this deposition before it, found that there was a contract between Cuddy and Gilchrist. Not having the deposition in question before us, it is impossible to say how strongly it militates against this findings of fact. By a series of decisions we have construed section 143 and 497 (2) of the Code of Civil Procedure to require the production of all the evidence in this court. This is the duty of the appellant and, upon his failure to perform it, we decline to proceed with a review of the evidence. In such cases we rely entirely upon the pleadings and the findings of fact of the trial court and examine only such assigned errors as raise questions of law. (Ferrer vs. Neri Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell & Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen & Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs.Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mansvs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of these cases make exceptions to the general rule. Thus, in Olsen & Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion of the evidence before us tended to show that grave injustice might result from a strict reliance upon the findings of fact contained in the judgment appealed from. We, therefore, gave the appellant an opportunity to explain the omission. But we required that such explanation must show a satisfactory reason for the omission, and that the missing portion of the evidence must be submitted within sixty days or cause shown for failing to do so. The other cases making exceptions to the rule are based upon peculiar circumstances which will seldom arise in practice and need not here be set forth, for the reason that they are wholly inapplicable to the present case. The appellants would be entitled to indulgence only under the doctrine of the Olsen case. But from that portion of the record before us, we are not inclined to believe that the missing deposition would be sufficient to justify us in reversing the findings of fact of the trial court that the contract in question had been made. There is in the record not only the positive and detailed testimony of Gilchrist to this effect, but there is also a letter of apology from Cuddy to Gilchrist in which the former enters into a lengthy explanation of his reasons for leasing the film to another party. The latter could only have been called forth by a broken contract with Gilchrist to lease the film to him. We, therefore, fail to find any reason for overlooking the omission of the defendants to bring up the missing portion of the evidence and, adhering to the general rule above referred to, proceed to examine the questions of law raised by the appellants.

From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same period. Did the appellants know that they were inducing Cuddy to violate his contract with a third party when they induced him to accept the P350? Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks. The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were perfected after April 26, so that the six weeks would include and extend beyond May 26. The appellants must necessarily have known at the time they made their offer to Cuddy that the latter had booked or contracted the film for six weeks from April 26. Therefore, the inevitable conclusion is that the appellants knowingly induced Cuddy to violate his contract with another person. But there is no specific finding that the appellants knew the identity of the other party. So we must assume that they did not know that Gilchrist was the person who had contracted for the film.

The appellants take the position that if the preliminary injunction had not been issued against them they could have exhibited the film in their theater for a number of days beginning May 26, and could have also subleased it to other theater owners in the nearby towns and, by so doing, could have cleared, during the life of their contract with Cuddy, the amount claimed as damages. Taking this view of the case, it will be unnecessary for us to inquire whether the mandatory injunction against Cuddy was properly issued or not. No question is raised with reference to the issuance of that injunction.

3

The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must be fully recognized and admitted by all. That Cuddy was liable in an action for damages for the breach of that contract, there can be no doubt. Were the appellants likewise liable for interfering with the contract between Gilchrist and Cuddy, they not knowing at the time the identity of one of the contracting parties? The appellants claim that they had a right to do what they did. The ground upon which the appellants base this contention is, that there was no valid and binding contract between Cuddy and Gilchrist and that, therefore, they had a right to compete with Gilchrist for the lease of the film, the right to compete being a justification for their acts. If there had been no contract between Cuddy and Gilchrist this defense would be tenable, but the mere right to compete could not justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights.

Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a result of competition, or the exercise of like rights by others, it is damnum absque injuria, unless some superior right by contract or otherwise is interfered with."

In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I think the plaintiff has a cause of action against the defendants, unless the court is satisfied that, when they interfered with the contractual rights of plaintiff, the defendants had a sufficient justification for their interference; . . . for it is not a justification that `they acted bona fide in the best interests of the society of masons,' i. e., in their own interests. Nor is it enough that `they were not actuated by improper motives.' I think their sufficient justification for interference with plaintiff's right must be an equal or superior right in themselves, and that no one can legally excuse himself to a man, of whose contract he has procured the breach, on the ground that he acted on a wrong understanding of his own rights, or without malice, or bona fide, or in the best interests of himself, or even that he acted as an altruist, seeking only good of another and careless of his own advantage." (Quoted with approval in Beekman vs. Marsters, 195 Mass., 205.)

It is said that the ground on which the liability of a third party for interfering with a contract between others rests, is that the interference was malicious. The contrary view, however, is taken by the Supreme Court of the United States in the case of Angle vs. Railway Co. (151 U. S., 1). The only motive for interference by the third party in that case was the desire to make a profit to the injury of one of the parties of the contract. There was no malice in the case beyond the desire to make an unlawful gain to the detriment of one of the contracting parties.

In the case at bar the only motive for the interference with the Gilchrist — Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its breach. It is, therefore, clear, under the above authorities, that they were liable to Gilchrist for the damages caused by their acts, unless they are relieved from such liability by reason of the fact that they did not know at the time the identity of the original lessee (Gilchrist) of the film.

The liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or omission, causes damages to another when there is fault or negligence, shall be obliged to repair the damage do done. There is nothing in this article which requires as a condition precedent to the liability of a tort-feasor that he must know the identity of a person to whom he causes damages. In fact, the chapter wherein this article is found clearly shows that no such knowledge is required in order that the injured party may recover for the damage suffered.

But the fact that the appellants' interference with the Gilchrist contract was actionable did not of itself entitle Gilchrist to sue out an injunction

against them. The allowance of this remedy must be justified under section 164 of the Code of Civil Procedure, which specifies the circumstance under which an injunction may issue. Upon the general doctrine of injunction we said in Devesa vs. Arbes (13 Phil. Rep., 273):

An injunction is a "special remedy" adopted in that code (Act No. 190) from American practice, and originally borrowed from English legal procedure, which was there issued by the authority and under the seal of a court of equity, and limited, as in order cases where equitable relief is sought, to cases where there is no "plain, adequate, and complete remedy at law," which "will not be granted while the rights between the parties are undetermined, except in extraordinary cases where material and irreparable injury will be done,"which cannot be compensated in damages, and where there will be no adequate remedy, and which will not, as a rule, be granted, to take property out of the possession of one party and put it into that of anotherwhose title has not been established by law.

We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba (19 Phil., Rep., 444), and we take this occasion of again affirming it, believing, as we do, that the indiscriminate use of injunctions should be discouraged.

Does the fact that the appellants did not know at the time the identity of the original lessee of the film militate against Gilchrist's right to a preliminary injunction, although the appellant's incurred civil liability for damages for such interference? In the examination of the adjudicated cases, where in injunctions have been issued to restrain wrongful interference with contracts by strangers to such contracts, we have been unable to find any case where this precise question was involved, as in all of those cases which we have examined, the identity of both of the contracting parties was known to the tort-feasors. We might say, however, that this fact does not seem to have a controlling feature in those cases. There is nothing in section 164 of the Code of Civil Procedure which indicates, even remotely, that before an injunction may issue restraining the wrongful interference with contrast by strangers, the strangers must know the identity of both parties. It would seem that this is not essential, as injunctions frequently issue against municipal corporations, public service corporations, public officers, and others to restrain the commission of acts which would tend to injuriously affect the rights of person whose identity the respondents could not possibly have known beforehand. This court has held that in a proper case injunction will issue at the instance of a private citizen to restrain ultra vires acts of public officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed to the determination of the main question of whether or not the preliminary injunction ought to have been issued in this case.

As a rule, injunctions are denied to those who have an adequate remedy at law. Where the choice is between the ordinary and the extraordinary processes of law, and the former are sufficient, the rule will not permit the use of the latter. (In re Debs, 158 U. S., 564.) If the injury is irreparable, the ordinary process is inadequate. In Wahle vs.Reinbach (76 Ill., 322), the supreme court of Illinois approved a definition of the term "irreparable injury" in the following language: "By `irreparable injury' is not meant such injury as is beyond the possibility of repair, or beyond possible compensation in damages, nor necessarily great injury or great damage, but that species of injury, whether great or small, that ought not to be submitted to on the one hand or inflicted on the other; and, because it is so large on the one hand, or so small on the other, is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law." (Quoted with approval in Nashville R. R. Co. vs.McConnell, 82 Fed., 65.)

The case at bar is somewhat novel, as the only contract which was broken was that between Cuddy and Gilchrist, and the profits of the appellee depended upon the patronage of the public, for which it is conceded the appellants were at liberty to complete by all fair does not deter the application of remarked in the case of the "ticket scalpers" (82 Fed., 65), the novelty of the facts does not deter the application of equitable principles. This court takes judicial notice of the general character of a cinematograph or motion-picture theater. It is a quite modern form of the play house, wherein, by means of an apparatus known as a cinematograph or cinematograph, a series of views representing closely successive phases of a moving object, are exhibited in rapid sequence,

4

giving a picture which, owing to the persistence of vision, appears to the observer to be in continuous motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent themselves to the art of the photographer in this manner have increased enormously in recent years, as well as have the places where such exhibition are given. The attendance, and, consequently, the receipts, at one of these cinematograph or motion-picture theaters depends in no small degree upon the excellence of the photographs, and it is quite common for the proprietor of the theater to secure an especially attractive exhibit as his "feature film" and advertise it as such in order to attract the public. This feature film is depended upon to secure a larger attendance that if its place on the program were filled by other films of mediocre quality. It is evident that the failure to exhibit the feature film will reduce the receipts of the theater.

Hence, Gilchrist was facing the immediate prospect of diminished profits by reason of the fact that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his feature film. It is quite apparent that to estimate with any decree of accuracy the damages which Gilchrist would likely suffer from such an event would be quite difficult if not impossible. If he allowed the appellants to exhibit the film in Iloilo, it would be useless for him to exhibit it again, as the desire of the public to witness the production would have been already satisfied. In this extremity, the appellee applied for and was granted, as we have indicated, a mandatory injunction against Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary injunction against the appellants restraining them from exhibiting that film in their theater during the weeks he (Gilchrist) had a right to exhibit it. These injunction saved the plaintiff harmless from damages due to the unwarranted interference of the defendants, as well as the difficult task which would have been set for the court of estimating them in case the appellants had been allowed to carry out their illegal plans. As to whether or not the mandatory injunction should have been issued, we are not, as we have said, called upon to determine. So far as the preliminary injunction issued against the appellants is concerned, which prohibited them from exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion that the circumstances justified the issuance of that injunction in the discretion of the court.

We are not lacking in authority to support our conclusion that the court was justified in issuing the preliminary injunction against the appellants. Upon the precise question as to whether injunction will issue to restrain wrongful interference with contracts by strangers to such contracts, it may be said that courts in the United States have usually granted such relief where the profits of the injured person are derived from his contractual relations with a large and indefinite number of individuals, thus reducing him to the necessity of proving in an action against the tort-feasor that the latter was responsible in each case for the broken contract, or else obliging him to institute individual suits against each contracting party and so exposing him to a multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were all cases wherein the respondents were inducing retail merchants to break their contracts with the company for the sale of the latters' trading stamps. Injunction issued in each case restraining the respondents from interfering with such contracts.

In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among other things, said: "One who wrongfully interferes in a contract between others, and, for the purpose of gain to himself induces one of the parties to break it, is liable to the party injured thereby; and his continued interference may be ground for an injunction where the injuries resulting will be irreparable."

In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the respondents were interfering in a contract for prison labor, and the result would be, if they were successful, the shutting down of the petitioner's plant for an indefinite time. The court held that although there was no contention that the respondents were insolvent, the trial court did not abuse its discretion in granting a preliminary injunction against the respondents.

In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the Jamestown Hotel Corporation, conducting a hotel within the grounds of the Jamestown Exposition, a contract whereby he was made their exclusive agent for the New England States to solicit patronage for the hotel. The defendant induced the hotel corporation to break their contract with the plaintiff in order to allow him to act also as their agent in the New England States. The court held that an action for damages would not have afforded the plaintiff adequate relief, and that an injunction was proper compelling the defendant to desist from further interference with the plaintiff's exclusive contract with the hotel company.

In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. (171 Fed., 553), the court, while admitting that there are some authorities to the contrary, held that the current authority in the United States and England is that:

The violation of a legal right committed knowingly is a cause of action, and that it is a violation of a legal right to interfere with contractual relations recognized by law, if there be no sufficient justification for the interference.

See also Nims on Unfair Business Competition, pp. 351- 371.

In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to prevent a wrongful interference with contract by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable. And where there is a malicious interference with lawful and valid contracts a permanent injunction will ordinarily issue without proof of express malice. So, an injunction may be issued where the complainant to break their contracts with him by agreeing to indemnify who breaks his contracts of employment may be adjoined from including other employees to break their contracts and enter into new contracts with a new employer of the servant who first broke his contract. But the remedy by injunction cannot be used to restrain a legitimate competition, though such competition would involve the violation of a contract. Nor will equity ordinarily enjoin employees who have quit the service of their employer from attempting by proper argument to persuade others from taking their places so long as they do not resort to force or intimidations on obstruct the public thoroughfares."

Beekman vs. Marster, supra, is practically on all fours with the case at bar in that there was only one contract in question and the profits of the injured person depended upon the patronage of the public. Hamby & Toomer vs.Georgia Iron & Coal Co., supra, is also similar to the case at bar in that there was only one contract, the interference of which was stopped by injunction.

For the foregoing reasons the judgment is affirmed, with costs, against the appellants

Article 1315

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs. COURT OF APPEALS and MANUEL

TORRES, Respondents.

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision[1 Second Division of the Court of Appeals[2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

5

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs.[3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision.[4 All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of respondents lack of funds or means and skills. They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Councils approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project.[5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition.

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial courts pronouncement that losses as well as profits in a joint venture should be distributed equally,[7 the CA invoked Article 1797 of the Civil Code which provides:

Article 1797 - The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable

under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

x x x [The] Court of Appeals erred in concluding that the transaction x x x between the petitioners and respondent was that of a joint

venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines.[8

The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate courts finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property.[9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:

W I T N E S S E T H:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales.

6

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated.[10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership.[11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondents actions clearly belie petitioners contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows:

ART. 1315. Contracts are perfected by mere consent, and 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.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771,[12 the execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made. The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property.[13 They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422[14 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.[15

7

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, the land was in effect given to the partnership as [petitioners] participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits.

Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of the failure of the project.[16 But it also ruled that neither was respondent responsible therefor.[17 In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine.[18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED

Article 1319

G.R. No. 112796 March 5, 1998TITO R. LAGAZO, Petitioner, vs. COURT OF APPEALS and ALFREDO CABANLIT, Respondents.

Where the acceptance of a donation was made in a separate instrument but not formally communicated to the donor, may the donation be nonetheless considered complete, valid and subsisting? Where, the deed of donation did not expressly impose any burden - the expressed consideration being purely one of liberality and generosity - a separate but the recipient actually paid charges imposed on the property like land taxes and installment arrearages, may the donation be deemed onerous and thus governed by the law on ordinary contracts?

The Case

The Court answers these questions in the negative as it resolves this petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision 1 of the Court of Appeals 2 in CA-GR CV No. 38050 promulgated on November 29, 1993. The assailed Decision reversed the Regional Trial Court, Branch 30, Manila, in Civil Case No. 87-39133 which had disposed 3 of the controversy in favor of herein petitioner in the following manner: 4

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows:

1. Ordering the defendant, or any person claiming rights under him, to surrender to plaintiff possession of the premises known as Lot 8w, Block 6, Psd-135534 of the Monserrat Estate, and the improvement standing thereon, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila;

2. Ordering the defendant to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos, as and for attorney's fees; and

3. Costs against the defendant.

The defendant's counterclaims are hereby dismissed.

The Facts

Although the legal conclusions and dispositions of the trial and the appellate courts are conflicting, the factual antecedents of the case are not substantially disputed. 5 We reproduce their narration from the assailed Decision:

Civil Case No. 83-39133 involves an action filed by plaintiff-appellee [herein petitioner] on January 22, 1987 seeking to recover from defendant-appellant [a] parcel of land which the former claims to have acquired from his grandmother by donation. Defendant-appellant [herein private respondent], on the other hand, put up the defense that when the alleged donation was executed, he had already acquired the property by a Deed of Assignment from a transferee of plaintiff-appellee's grandmother.

The evidence for plaintiff-appellee [herein petitioner] is summarized as follows:

Catalina Jacob Vda. de Reyes, a widow and grandmother of plaintiff-appellee, was awarded in July 1975 a 60.10-square meter lot which is a portion of the Monserrat Estate, more particularly described as Lot 8W, Block 6 of Psd-135834, located at 3320 2nd St., V. Mapa, Old Sta. Mesa, Manila. The Monserrat Estate is a public land owned by the City of Manila and distributed for sale to bona fide tenants under its land-for-the-landless program. Catalina Jacob constructed a house on the lot.

On October 3, 1977, or shortly before she left for Canada where she is now a permanent resident, Catalina Jacob executed a special power of attorney (Exh. "A") in favor of her son-in-law Eduardo B. Español authorizing him to execute all documents necessary for the final adjudication of her claim as awardee of the lot.

Due to the failure of Eduardo B. Español to accomplish the purpose of the power of attorney granted to him, Catalina Jacob revoked said authority in an instrument executed in Canada on April 16, 1984 (Exh. "D"). Simultaneous with the revocation, Catalina Jacob executed another power of attorney of the same tenor in favor plaintiff-appellee.

On January 30, 1985, Catalina Jacob executed in Canada a Deed of Donation over a Lot 8W in favor of plaintiff-appellee (Exh. "E"). Following the donation, plaintiff-appellee checked with the Register of Deeds and found out that the property was in the delinquent list, so that he paid the installments in arrears and the remaining balance on the lot (Exhs. "F", "F-1" and "F-2") and declared the said property in the name of Catalina Jacob (Exhs. "G", "G-1", "G-2" and "G-3").

On January 29, 1986, plaintiff-appellee sent a demand letter to defendant-appellant asking him to vacate the premises (Exh. "H"). A similar letter was sent by plaintiff-appellee's counsel to defendant on September 11, 1986 (Exh. "I"). However, defendant-appellant refused to vacate the premises claiming ownership thereof. Hence, plaintiff-appellee instituted the complaint for recovery of possession and damages against defendant-appellant.

Opposing plaintiff-appellee's version, defendant-appellant claimed that the house and lot in controversy were his by virtue of the following documents:

1. Deed of Absolute Sale executed by Catalina Jacob dated October 7, 1977 in favor of Eduardo B. Español covering the residential house located at the premises (Exh. "4").

2. Deed of Assignment over Lot 8W executed by Catalina Jacob in favor of Eduardo Español dated September 30, 1980 (Exh. "5"); and

8

3. Deed of Assignment executed by Eduardo B. Español over Lot 8W and a residential house thereon in favor of defendant-appellant dated October 2, 1982 (Exh. "6").

After trial, the lower court decided in favor of plaintiff-appellee and against defendant-appellant, rationalizing that the version of the former is more credible than that of the latter. According to the lower court:

From the oral and documentary evidence adduced by the parties[,] it appears that the plaintiff- has a better right over the property, subject matter of the case. The version of the plaintiff is more credible than that of the defendant. The theory of the plaintiff is that the house and lot belong to him by virtue of the Deed of Donation in his favor executed by his grandmother Mrs. Jacob Vda. de Reyes, the real awardee of the lot in question. The defendant's theory is that he is the owner thereof because he bought the house and lot from Eduardo Español, after the latter had shown and given to him Exhibits 1, 4 and 5. He admitted that he signed the Deed of Assignment in favor of Eduardo Español on September 30, 1980, but did not see awardee Catalina Jacob Vda. de Reyes signed [sic] it. In fact, the acknowledgement in Exhibit "5" shows that the assignor/awardee did not appear before the notary public. It may be noted that on said date, the original awardee of the lot was no longer in the Philippines, as both parties admitted that she had not come back to the Philippines since 1977. (Exhs. K, K-1). Defendant, claiming to be the owner of the lot, unbelievably did not take any action to have the said house and lot be registered or had them declared in his own name. Even his Exhibit 7 was not mailed or served to the addressee. Such attitude and laxity is very unnatural for a buyer/owner of a property, in stark contrast of [sic] the interest shown by the plaintiff who saw to it that the lot was removed from the delinquent list for non-payment of installments and taxes due thereto [sic]. 6

Ruling of the Appellate Court

In reversing the trial court's decision, 7 Respondent Court of Appeals anchored its ruling upon the absence of any showing that petitioner accepted his grandmother's donation of the subject land. Citing jurisprudence that the donee's failure to accept a donation whether in the same deed of donation or in a separate instrument renders the donation null and void, Respondent Court denied petitioner's claim of ownership over the disputed land. The appellate court also struck down petitioner's contention that the formalities for a donation of real property should not apply to his case since it was an onerous one - he paid for the amortizations due on the land before and after the execution of the deed of donation - reasoning that the deed showed no burden, charge or condition imposed upon the donee; thus, the payments made by petitioner were his voluntary acts.

Dissatisfied with the foregoing ruling, petitioner now seeks a favorable disposition from this Court. 8

Issues

Petitioner anchors his petition on the following grounds: 9

[I.] In reversing the decision of the trial court, the Court of Appeals decided a question of substance in a way not in accord with the law and applicable decisions of this Honorable Court.

[II.] Even granting the correctness of the decision of the Court of Appeals, certain fact and circumstances transpired in the meantime which would render said decision manifestly unjust, unfair and inequitable to petitioner.

We believe that the resolution of this case hinges on the issue of whether the donation was simple or onerous.

The Court's Ruling

The petition lacks merit.

Main Issue:Simple or Onerous Donation?

At the outset, let us differentiate between a simple donation and an onerous one. A simple or pure donation is one whose cause is pure liberality (no strings attached), while an onerous donation is one which is subject to burdens, charges or future services equal to or more in value than the thing donated. 10 Under Article 733 of the Civil Code, donations with an onerous cause shall be governed by the rules on contracts; hence, the formalities required for a valid simple donation are not applicable.

Petitioner contends that the burdens, charges or conditions imposed upon a donation need not be stated on the deed of donation itself. Thus, although the deed did not categorically impose any charge, burden or condition to be satisfied by him, the donation was onerous since he in fact and in reality paid for the installments in arrears and for the remaining balance of the lot in question. Being an onerous donation, his acceptance thereof may be express or implied, as provided under Art. 1320 of the Civil Code, and need not comply with the formalities required by Art. 749 of the same code. His payment of the arrearages and balance and his assertion of his right of possession against private respondent clearly indicate his acceptance of the donation.

We rule that the donation was simple, not onerous. Even conceding that petitioner's full payment of the purchase price of the lot might have been a burden to him, such payment was not however imposed by the donor as a condition for the donation. Rather, the deed explicitly stated:

That for and in consideration of the love and affection which the DONEE inspires in the DONOR, and as an act of liberality and generosity and considering further that the DONEE is a grandson of the DONOR, the DONOR hereby voluntarily and freely gives, transfer[s] and conveys, by way of donation unto said DONEE, his heirs, executors, administrators and assigns, all the right, title and interest which the said DONOR has in the above described real property, together with all the buildings and improvements found therein, free from all lines [sic] and encumbrances and charges whatsoever; 11 [emphasis supplied]

It is clear that the donor did not have any intention to burden or charge petitioner as the donee. The words in the deed are in fact typical of a pure donation. We agree with Respondent Court that the payments made by petitioner were merely his voluntary acts. This much can be gathered from his testimony in court, in which he never even claimed that a burden or charge had been imposed by his grandmother.

ATTY FORONDA:

q After you have received this [sic] documents, the . . . revocation of power of attorney and the Special Power of Attorney in your favor, what did you do?

WITNESS:

a I went here in City Hall and verif[ied] the status of the award of my grandmother.

q When you say the award, are you referring to the award in particular [of the] lot in favor of your grandmother?

a Yes, Sir.

q What was the result of your verification?

a According to the person in the office, the papers of my grandmother is [sic] includ[ed] in the dilinquent [sic] list.

q What did you do then when you found out that the lot was includ[ed] in the dilinquent [sic] list?

9

a I talked to the person in charged [sic] in the office and I asked him what to do so that the lot should not [be] included in the dilinquent [sic] list.

ATTY. FORONDA:

q And what was the anwer [sic] given to you to the inquiry which you made?

WITNESS:

a According to the person in the office, that I would pay the at least [sic] one half of the installment in order to take [out] the document [from] the delinquent list.

q And [were] you able to pay?

a I was able to pay, sir.

q What were you able to pay, one half of the balance or the entire amounts [sic]?

a First, I paid the [sic] one half of the balance since the time the lot was awarded to us.

q What about the remaining balance, were you able to pay it?

a I was able to pay that, sir.

q So, as of now, the amount in the City of Manila of the lot has already been duly paid, is it not?

a Yes, sir. 12

The payments even seem to have been made pursuant to the power of attorney 13 executed by Catalina Reyes in favor of petitioner, her grandson, authorizing him to execute acts necessary for the fulfillment of her obligations. Nothing in the records shows that such acts were meant to be a burden in the donation.

As a pure or simple donation, the following provisions of the Civil Code are applicable:

Art. 734. The donation is perfected from the moment the donor knows of the acceptance by the donee.

Art. 746. Acceptance must be made during the lifetime of the donor and the donee.

Art. 749. In order that the donation of an immovable may be valid, it must be made in a public instrument, specifying therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation and in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in authentic form, and this step shall be noted in both instruments.

In the words of the esteemed Mr. Justice Jose C. Vitug, 14 "Like any other contract, an agreement of the parties is essential. The donation, following the theory of cognition (Article 1319, Civil Code), is perfected only upon the moment the donor knows of the acceptance by the donee." Furthermore, "[i]f the acceptance is made in a separate instrument, the

donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments."15

Acceptance of the donation by the donee is, therefore, indispensable; its absence makes the donation null and void.16 The perfection and the validity of a donation are well explained by former Sen. Arturo M. Tolentino in this wise:

. . . Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and unless it has been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If the acceptance does not appear in the same document, it must be made in another. Solemn words are not necessary; it is sufficient if it shows the intention to accept. But in this case it is necessary that formal notice thereof be given to the donor, and the fact that due notice has been given must be noted in both instruments (that containing the offer to donate and that showing the acceptance). Then and only then is the donation perfected. If the instrument of donation has been recorded in the registry of property, the instrument that shows the acceptance should also be recorded. Where the deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate instrument, is either not given to the donor or else not noted in the deed of donation and in the separate acceptance, the donation is null and void. 17

Exhibit E (the deed of donation) does not show any indication that petitioner-donee accepted the gift. During the trial, he did not present any instrument evidencing such acceptance despite the fact that private respondent already raised this allegation in his supplemental pleading 18 to which petitioner raised no objection. It was only after the Court of Appeals had rendered its decision, when petitioner came before this Court, that he submitted an affidavit 19dated August 28, 1990, manifesting that he "wholeheartedly accepted" the lot given to him by his grandmother, Catalina Reyes. This is too late, because arguments, evidence, causes of action and matters not raised in the trial court may no longer be raised on appeal. 20

True, the acceptance of a donation may be made at any time during the lifetime of the donor. And granting arguendothat such acceptance may still be admitted in evidence on appeal, there is still need for proof that a formal notice of such acceptance was received by the donor and noted in both the deed of donation and the separate instrument embodying the acceptance. At the very least, this last legal requisite of annotation in both instruments of donation and acceptance was not fulfilled by petitioner. For this reason, the subject lot cannot be adjudicated to him.

Secondary Issue:Supervening Events

Petitioner also contends that certain supervening events have transpired which render the assailed Decision "manifestly unjust, unfair and inequitable" to him. The City of Manila has granted his request for the transfer to his name of the lot originally awarded in favor of Catalina Reyes. A deed of sale 21 covering the subject lot has in fact been executed between the City of Manila, as the vendor; and petitioner, as the vendee. The corresponding certificate of title 22 has also been issued in petitioner's name.

A close perusal of the city government's resolution 23 granting petitioner's request reveals that the request for and the grant of the transfer of the award were premised on the validity and perfection of the deed of donation executed by the original awardee, petitioner's grandmother. This is the same document upon which petitioner, as against private respondent, asserts his right over the lot. But, as earlier discussed and ruled, this document has no force and effect and, therefore, passes no title, right or interest.

Furthermore, the same resolution states:

WHEREAS, in a report submitted by Ms. [Menchu C.] Bello [, Special Investigator,] on February 7, 1990, it is stated that . . . constructed on the

10

lot is a make-shift structure used for residential purposes by the proposed transferee Tito Lagazo and his family; . . . and that constructed at Lot 8, Block 6, former Monserrat Estate is a make-shift structure used as a dwelling place by Lagazo and family because the front portion of their house which was constructed on a road lot was demolished, and the structure was extended backward covering a portion of the old temporary road lot. . . .

The above findings of the investigator are, however, directly contradictory to the testimonies in court of petitioner himself and of private respondent. Petitioner claimed the following: that the house constructed on the subject lot was owned by his grandmother Catalina Jacob; that before the latter left for Canada in 1977, Eduardo Español had already been living in the same house and continued to do so until 1982; and that private respondent occupied the premises after Español left. 24 On the other hand, private respondent testified that he bought the subject house and lot from Eduardo Español in 1982, after which he and his family occupied the same; but sometime in 1985, they had to leave the place due to a road-widening project which reduced the house to "about three meters [in] length and one arm[']s width." 25

Between the testimonies under oath of the contending parties and the report - not subjected to cross-examination - which was prepared by the investigator who recommended the approval of petitioner's request for transfer, it is the former to which the Court is inclined to give more credence. The investigator's report must have been based on the misrepresentations of petitioner who arrogated unto himself the prerogatives of both Español and private respondent. Further, it is on record that petitioner had required private respondent to vacate the subject premises before he instituted this complaint. This shows he was not in actual possession of the property, contrary to the report of the investigator.

Cabanlit's Claim of Ownership

Petitioner also assails Respondent Court's conclusion that it is unnecessary to pass upon private respondent's claim over the property. Petitioner insists that the principal issue in the case, as agreed upon by the parties during pretrial, is "who between the parties is the owner of the house and lot in question."

In disposing of the principal issue of the right of petitioner over the subject property under the deed of donation, we arrive at one definite conclusion: on the basis of the alleged donation, petitioner cannot be considered the lawful owner of the subject property. This does not necessarily mean, however, that private respondent is automatically the rightful owner.

In resolving private respondent's claim of ownership, the examination of the genuineness of the documents (deeds of assignment over the lot between Catalina Reyes and Eduardo Español and between Español and private respondent) upon which he asserts his right is necessary, especially in light of petitioner's allegations of forgery. However, the respective assignors in both documents are not parties to the instant case. Not having been impleaded in the trial court, they had no participation whatsoever in the proceedings at bar. Elementary norms of fair play and due process bar us from making any disposition which may affect their rights. Verily, there can be no valid judgment for or against them. 26

Anyhow, since petitioner, who was the plaintiff below, failed to prove with clear and convincing evidence his ownership claim over the subject property, the parties thus resume their status quo ante. The trial court should have dismissed his complaint for his failure to prove a right superior to that of private respondent, but without prejudice to any action that Catalina Reyes or Eduardo Español or both may have against said private respondent. Stating this point otherwise, we are not ruling in this case on the rights and obligations between, on the one hand, Catalina Reyes, her assigns and/or representatives; and, on the other, Private Respondent Cabanlit.

Not having proven any right to a valid, just and demandable claim that compelled him to litigate or to incur expenses in order to protect his interests by reason of an unjustified act or omission of private respondent, petitioner cannot be awarded attorney's fees. 27

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. SO ORDERED.

G.R. No. 20732           September 26, 1924

C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, Plaintiff-Appellant , vs. EDWIN BURKE, Defendant-Appellant. 

THE COOPER COMPANY, intervenor-appellee.virtual law library

The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in Australia in the year 1920 for the purpose of selling it here. This yacht was purely for recreation and as no purchaser presented himself, it had been moored for several months until the plaintiff H. W. Elser, at the beginning of the year 1922, began negotiations with the defendant for the purchase thereof. At the time this yacht was mortgaged to the Asia Banking Corporation to secure the payment of a debt of P100,000 which was due and unpaid since one year prior thereto, contracted by the defendant in favor of said bank of which Mr. Avery was then the manager. The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht for P120,000, of which P20,000 was to be retained by him as commission and the remaining P100,000 to be paid to the defendant. To this end, on February 12, 1922, the defendant obtained from the plaintiff an option in writing in the following terms:

For the purpose expressed by you of organizing a yacht club, I take pleasure in confirming my verbal offer to you of the motor yacht Bronzewing, at a price of one hundred and twenty thousand pesos (P120,000). This offer is open for thirty days from date.

To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the yacht to the south, with prominent business men for the purpose, undoubtedly, of making an advantageous sale. But as the yacht needed some repairs to make it seaworthy for this voyage, and as, on the other hand, the defendant said that he had no funds to make said repairs, the plaintiff paid almost all their amount. It has been stipulated that the plaintiff was not to pay anything for the use of the yacht. The cost of those repairs was P6,972.21, which was already paid by the plaintiff, plus P1,730.84 due to the Cooper Company which still remains unpaid, plus P832.93, due to the plaintiff, which also remains unpaid. Once the yacht was repaired, the plaintiff gave receptions on board, and on March 6, 1922, made his pleasure voyage to the south, coming back on the 23d of the same month. The plaintiff never accepted the offer of the defendant for the purchase of the yacht contained in the letter of option of February 12, 1922. The plaintiff believed, in view of the result of that voyage, that it was convenient to replace the engine of the yacht with a new one which would cost P20,000. In this connection the plaintiff had negotiated with Mr. Avery for another loan of P20,000 with which to purchase this new engine. On the 31st of that month of March the plaintiff wrote the defendant a letter informing him, among other things, that after he had tried to obtain from Mr. Avery said new loan of P20,000 for the purchase of the engine, and that he was not disposed to purchase the vessel for more than P70,000, Mr. Avery had told him that he was not in position to give one cent more. In this letter the plaintiff suggested to the defendant that he should speak with Mr. Avery about the matter. The defendant, after an interview with Mr. Avery held on the same day, answered the plaintiff that he had arrived at an agreement with Mr. Avery about the sale of the yacht to the plaintiff for P80,000 payable as follows: P5,000 each month during the first six months and P10,000 thereafter until full payment of the price, the yacht to be mortgaged to secure payment thereof. On the first of April next, the plaintiff informed the defendant that he was not inclined to accept this proposition. On the morning of the 3d of the same month, the defendant called at the office of the plaintiff to speak with him about the matter and as a result of the interview held between them, the plaintiff in the presence of the defendant wrote a letter addressed to the latter which is literally as follows:

11

MY DEAR MR. BURKE: virtual law library

In connection with the yacht Bronzewing, I am in position and am willing

to entertain the purchase of it under the following terms: virtual law

library

(a) The purchase price to be P80,000, Philippine

currency.virtualawlibrary virtual law library

(b) Initial payment of P10,000 to be made within sixty (60)

days.virtualawlibrary virtual law library

(c) Payment of the balance to be made in installments of P5,000 per

month, with interest on deferred payments at 9 per cent payable

semiannually.virtualawlibrary virtual law library

(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial value P400,000, book value P600,000. Statement covering this will be furnished you on request.virtualawlibrary virtual law library

Yours very truly,

(Sgd.) H. W. ELSERProposition Accepted.            (Sgd.) E. BURKE            MANILA, April 3, 1922.

ASIA BKG. CORP.            Agreed to as above.           (Sgd.) W. G. AVERY      Mgr.            Asia Bkg. Corp.

The defendant took this letter and went to the Asia Banking Corporation and after holding an interview with Mr. Avery, both of them signed at the bottom of the letter of Mr. Elser, as appear there. On the 5th of the same month of April the plaintiff sent the defendant another letter, telling him that in view of the attitude of Mr. Avery as to the loan of P20,000 in connection with the installation of a new engine in the yacht, it was impossible for him to take charge of the boat and he made delivery thereof to the defendant. On the 8th of the same month of April the defendant answered the plaintiff that as he had accepted, with the consent of the Asia Banking Corporation, through Mr. Avery, the offer for the purchase of the yacht made by the plaintiff in his letter of the 3d of April (Exhibit 1), he made demand on him for the performance thereof.virtualawlibrary virtual law library

The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value of the repairs made on the yacht which he had paid for.virtualawlibrary virtual law library

The defendant alleges as a defense against this action that the agreement he had with the plaintiff about these repairs was that the letter was to pay for them for his own account in exchange of the gratuitous use of the yacht, and prays that he be absolved from the complaint. As a counterclaim he prays that the plaintiff be compelled to pay him the sum of P832.93, one-half of the price of the canvas used in the repair of the yacht, which has not as yet been paid by the plaintiff. Furthermore, alleging that the plaintiff purchased the vessel in accordance with his letter of April 3, 1922, he prays as a cross-complaint that the plaintiff be compelled to comply with the terms of this contract and to pay damages in the sum of P10,000.virtualawlibrary virtual law library

The Cooper Company was admitted to intervene in this action and claims in turn its credit of P1,730.84 for the repairs made on the yacht, the amount of which has not as yet been paid.virtualawlibrary virtual law library

The trial court rendered judgment sentencing the defendant to pay the plaintiff the sum of P6,139.28 with legal interest thereon at the rate of 6 per cent from April 18, 1922, and to pay the intervenor, the Cooper Company, the sum of P1,730.84 with legal interest at 6 per cent from May 19, 1922. The plaintiff was sentenced to comply in all its parts with the contract for the purchase of the yacht, according to the terms of his letter of April 3d (Exhibit 1). Both the plaintiff and the defendant appealed from this judgment.virtualawlibrary virtual law library

The plaintiff appeals from the judgment in so far as it compels him to purchase the yacht upon the conditions stated in the letter of April 3, 1922 (Exhibit 1). This appeal raises the question whether or not this letter was a definite offer to purchase, and the same having been accepted by the defendant with the consent of Mr. Avery on behalf of the Asia Banking Corporation, whether or not it is a contract of sale valid and binding against the plaintiff. The trial court solved this question in the affirmative. We are of the opinion that this is an error.virtualawlibrary virtual law library

As was seen, this letter begins as follows: "In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under the following terms . . . ." The whole question is reduced to determining what the intention of the plaintiff was in using that language.virtualawlibrary virtual law library

To convey the idea of a resolution to purchase, a man of ordinary intelligence and common culture would use these clear and simple words, I offer to purchase, I want to purchase, I am in position to purchase. And the stronger is the reason why the plaintiff should have expressed his intention in the same way, because, according to the defendant, he was a prosperous and progressive merchant. It must be presumed that a man in his transactions in good faith uses the best means of expressing his mind that his intelligence and culture permit so as to convey and exteriorize his will faithfully and unequivocally. But the plaintiff instead of using in his letter the expression, I want to purchase, I offer to purchase, I am in position to purchase, or other similar language of easy and unequivocal meaning, used this other, I am in position and am willing to entertain the purchase of the yacht. The word "entertain" applied to an act does not mean the resolution to perform said act, but simply a position to deliberate for deciding to perform or not to perform said act. Taking into account only the literal and technical meaning of the word "entertain," it seems to us clear that the letter of the plaintiff cannot be interpreted as a definite offer to purchase the yacht, but simply a position to deliberate whether or not he would purchase the yacht. It was but a mere invitation to a proposal being made to him, which might be accepted by him or not.virtualawlibrary virtual law library

Furthermore there are other circumstances which show that in writing this letter it was really not the intention of the plaintiff to make a definite offer. The plaintiff never thought of acquiring the yacht for his personal use, but for the purpose of selling it to another or to acquire it for another, thereby obtaining some gain from the transaction, and it can be said that the only thing the plaintiff wanted in connection with this yacht was that the defendant should procure its sale, naturally with some profit for himself. For this reason the original idea of the plaintiff was to organize a yacht club that would afterwards acquire the yacht through him, realizing some gain from the sale. This is clearly stated in the letter containing the option that the defendant gave him on February 12, 1922. This accounts for the fact that the plaintiff was not in a position to make a definite offer to purchase, he being sure to be able to resell the yacht to another, and this explains why he did not say in his letter of the 3d of April that he was in position to purchase the yacht, but only to entertain this purchase.virtualawlibrary virtual law library

On the other hand, the plaintiff thought it necessary to replace the engine of the yacht with a new one which was to cost P20,000 and has been negotiating with Mr. Avery a loan of P20,000 to make the replacing. When the plaintiff wrote his letter of the 3rd of April, he knew that Mr. Avery was not in position to grant this loan. According to this, the resolution of the plaintiff to acquire the yacht depended upon him being able to replace the engine, and this, in turn, depended upon the plaintiff being successful in obtaining the P20,000 that the new engine was to cost. This accounts

12

also for the fact that the plaintiff was not in position to make a definite offer.virtualawlibrary virtual law library

But above all, there is in the record positive proof that in writing this letter of the 3d of April the plaintiff had no intention to make thereby a definite offer. This letter was written by his stenographer Mr. Parkins in his office and in the presence of the defendant who has been there precisely for the purpose of speaking about this purchase. According to the plaintiff when he was dictating that part wherein he said that he was in position to entertain the purchase of the yacht, the defendant interrupted him and suggested the elimination of the word entertain and the substitution therefor of a definite offer, but after a discussion between them, during which the plaintiff clearly said that he was not in position to make a definite offer, the word entertain now appearing in the letter was preserved. The stenographer Mr. Parkins and another employee of the plaintiff Mr. Guzman, who were present, corroborate this statement of the plaintiff.virtualawlibrary virtual law library

The lower court seems to have been impressed by the consideration that it was anomalous for the plaintiff to write that letter if his purpose was only to indicate to the defendant that he wanted the latter to make a proposal which he (plaintiff) might reject or accept. We see nothing anomalous in this. A proposition may be acceptable in itself, but its acceptance may depend on other circumstances; thus one may say that a determinate proposition is acceptable, and yet he may not be in a position to accept the same at the moment.virtualawlibrary virtual law library

The letter of the plaintiff not containing a definite offer but a mere invitation to an offer being made to him, the acceptance of the defendant placed at the bottom of this letter has not other meaning than that of accepting the proposition to make this offer, as must have been understood by the plaintiff.virtualawlibrary virtual law library

The appeal of the defendant raises the question as to who must pay the repairs made on the yacht. The lower court decided that it is the defendant. We are of the opinion that this is also an error. The plaintiff was the one who directly and personally ordered these repairs. It was agreed between the plaintiff and the defendant that the former was not to pay anything for the use of the yacht. This, at the first glance, would make us believe that it was the plaintiff who was to pay for the repairs in exchange for the use of the yacht in order that the profit should be reciprocal. But the plaintiff claims that his agreement was that he had to advance only the amount of the repairs, and that the defendant was at last the one to pay therefor. The defendant, in turn, claims that the agreement was that the plaintiff was to pay for these repairs in exchange for the use of the yacht. Upon this contention there is, on the one hand, but the testimony of the plaintiff and, on the other, the testimony of the defendant. But it having been the plaintiff who ordered and made these repairs, and in view of the fact that he was not obliged to pay anything for the use of the yacht, his mere testimony contradicted by that of the defendant, cannot be considered as a sufficient evidence to establish the latter's obligation. Furthermore according to the defendant, nothing was agreed upon about the kind of the repairs to be made on the yacht and there was no limit to said repairs. It seems strange that the defendant should accept liability for the amount of these repairs, leaving their extent entirely to the discretion of the plaintiff. And this discretion, according to the contention of the plaintiff, includes even that of determining what repairs must be paid by the defendant, as evidenced by the fact that the plaintiff has not claimed the amount of any, such as the wireless telegraph that was installed in the yacht, and yet he claims as a part thereof the salaries of the officers and the crew which do not represent any improvement on the vessel.virtualawlibrary virtual law library

Our conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer and that the plaintiff is bound to pay the amount of the repairs of the yacht in exchange for the use thereof.virtualawlibrary virtual law library

For all of the foregoing the judgment appealed from is reversed, the defendant is absolved from the complaint, the plaintiff is sentenced to pay to the Cooper Company the sum of P1,730.84 with interest and to the defendant the sum of P832.93, and the plaintiff is declared to be under no

obligation to purchase the yacht upon the terms of his letter of April 3, 1922, without special pronouncement as to cost. So ordered.

G.R. No. L-48980            September 27, 1943

YSIDARA COJUANGCO, Plaintiff-Appellee, vs. FRANCISCO BATANGAN, Defendant-Appellant.law library

On September 26, 1938, appellee commenced this action to foreclose a real-estate mortgage executed by appellant in her favor on August 7, 1933, and which fell due on April 15, 1934. On October 20, 1938,, appellant answered the complaint with a mere general denial. After several postponements of the trial made at the instance of appellant, the case was finally submitted by the parties for decision on November 4, 1940, upon a written compromise agreement wherein appellant admitted and recognized that there was due from him to appellee under the mortgage in question the sum of P1,318.80; "that this amount of P1,318.80 is to be paid on or before February 28, 1941, and in case the defendant shall fail to pay the same within the period above mentioned, the decision to be rendered in accordance with this agreement of compromise shall be considered final on February 28, 1941, and the plaintiff shall then be entitled to ask for a writ of execution for the sale of the mortgaged property and in which case the amount of P1,318.80 is to bear interest at 10%1 from March 1, 1941, until its full payment." That agreement was approved by the court and judgment was entered then and there in accordance therewith.virtualawlibrary virtual law library

Appellant never complied with said agreement. On May 5, 1941, appellee, without any opposition on the part of appellant, moved the court for the issuance of a writ of execution, which motion was granted on May 14, 1941.virtualawlibrary virtual law library

Thereafter, and on June 5, 1941, appellant for the first time filed a motion to set aside the judgment entered on November 4, 1940, upon the pretext that when he signed the compromise agreement he was made to understand that appellee would wait one year from February 28, 1941, before asking for a writ of execution. He further alleged for the first time that the deed of mortgage did not express the true intention of the parties because instead of the P1,000 therein mentioned he received only P900, and because altho the interest stated in the contract was only 12% per annum the real agreement was for him to pay 22% per annum. The court denied that motion to set aside the judgment. Appellant attempted to appeal from the order of denial, but the lower court disapproved the bill of exceptions, and this Court, in G. R. No. 48343, dismissed for lack of merit the petition for mandamus to compel the judge to approve and certify said bill of exceptions.virtualawlibrary virtual law library

On July 22, 1941, pursuant to the writ of execution, the sheriff advertised and sold the mortgaged property at public auction, adjudicating it to the appellee as the highest bidder for the sum of P1,508.28. That sale was subsequently confirmed by the court over the objection of appellant, and from the order of confirmation appellant perfected the present appeal.virtualawlibrary virtual law library

In his first assignment of error appellant assails the order of the court denying his motion to set aside the judgment of foreclosure. His attempt to appeal from said order having failed, said assignment of error cannot properly be considered in the present appeal. But in any event said order is manifestly correct, for the sixty-day period mentioned in section 3 of Rule 38 begins from the date the petitioner learns of the judgment and not from the date he claims to have discovered the alleged mistake or fraud upon which he bases the motion to set aside the judgment. (Ng Hieng vs. Diaz and Boncan, G. R. No. 49017.) virtual law library

We find the imputation of deceit against counsel for the appellee in appellant's second assignment of error to be absurd and absolutely unwarranted. After defaulting in the fulfillment of his obligation for more than four years before appellee commenced this action; after succeeding in having the trial of the case delayed for more than two years; after failing for more than one year to pay the judgment entered against him in accordance with his written compromise agreement with the appellee - after all these delays in favor of appellant and to the prejudice of appellee

13

- the former's imputation that the attorney for the latter had resorted to deceit in order to accelerate the execution of the judgment would but seem to add insult to injury. We cannot refrain from expressing our condemnation of such unfair and reprehensible tactics of bad debtor.virtualawlibrary virtual law library

Section 2 of Rule 70, providing for the payment into court within ninety days of the amount of the judgment, is not applicable to the judgment in question, which merely approved a compromise agreement of the parties as to the term of payment. Moreover, more than ninety days elapsed from the entry of the judgment without appellant's ever having offered to pay into court the amount of said judgment. So he cannot be heard to complain on that account.virtualawlibrary virtual law library

The sale of the mortgaged property cannot be annulled on the ground of the alleged inadequacy of the price (1) because there is no evidence as to the real market value of the land sold and (2) because there is no showing that another purchaser was ready to offer a higher price than that for which it was adjudicated by the sheriff to the appellee. (Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil., 439, and La Urbana vs. Belando, 54 Phil., 930.) virtual law library

Appellant has no right to redeem the property sold pursuant to the foreclosure of the mortgage thereon.2 Under section 3 of Rule 70, such sale when confirmed by an order of the court shall operate to divest the rights of all the parties to the action and to best their rights in the purchaser, "subject to such rights of redemption as may be allowed by law." The saving clause quoted refers to the rights of redemption expressly authorized by special laws, such as Acts Nos. 2747 and 1938, known as the charter of the Philippine National Bank, and Commonwealth Act No. 459 creating the Agricultural and Industrial Bank, which allow the redemption in the foreclosure of mortgages executed in favor of said banks. The mortgage here in question was not executed under any of said special laws, and its foreclosure therefore does not come within the purview of the said saving clause.virtualawlibrary virtual law libraryThe order appealed from his affirmed, with costs.

G.R. No. 16530             March 31, 1922

MAMERTO LAUDICO and FRED M. HARDEN, plaintiffs-appellants, vs.MANUEL ARIAS RODRIGUEZ, ET AL., defendants-appellants.

On February 5, 1919, the defendant, Vicente Arias, who, with his codefendants, owned the building Nos. 205 to 221 on Carriedo Street, on his behalf and that of his coowners, wrote a letter to the plaintiff, Mamerto Laudico, giving him an option to lease the building to a third person, and transmitting to him for that purpose a tentative contract in writing containing the conditions upon which the proposed lease should be made. Later Mr. Laudico presented his coplaintiff, Mr. Fred. M. Harden, as the party desiring to lease the building. On one hand, other conditions were added to those originally contained in the tentative contract, and, on the other, counter-propositions were made and explanations requested on certain points in order to make them clear. These negotiations were carried on by correspondence and verbally at interviews held with Mr. Vicente Arias, no definite agreement having been arrived at until the plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias on March 6, 1919, advising him that all his propositions, as amended and supplemented, were accepted. It is admitted that this letter was received by Mr. Arias by special delivery at 2.53 p.m. of that day. On that same day, at 11.25 in the morning, Mr. Arias had, in turn, written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to lease the building.

The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the contract of lease of the building in question. It thus results that when Arias sent his letter of withdrawal to Laudico, he had not yet received the letter of acceptance, and when it reached him, he had already sent his letter of withdrawal. Under these facts we believe that no contract was perfected between the plaintiffs and the defendants.

The parties agree that the circumstances under which that offer was made were such that the offer could be withdrawn at any time before acceptance.

Under article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any effect until it comes to the knowledge of the offerer. Therefore, before he learns of the acceptance, the latter is not yet bound by it and can still withdraw the offer. Consequently, when Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he had not yet receive notice of the acceptance. And when the notice of the acceptance was received by Mr. Arias, it no longer had any effect, as the offer was not then in existence, the same having already been withdrawn. There was no meeting of the minds, through offer and acceptance, which is the essence of the contract. While there was an offer, there was no acceptance, and when the latter was made and could have a binding effect, the offer was then lacking. Though both the offer and the acceptance existed, they did not meet to give birth to a contract.

Our attention has been called to a doctrine laid down in some decisions to the effect that ordinarily notice of the revocation of an offer must be given to avoid an acceptance which may convert in into a binding contract, and that no such notice can be deemed to have been given to the person to whom the offer was made unless the revocation was in fact brought home to his knowledge.

This, however, has no application in the instant case, because when Arias received the letter of acceptance, his letter of revocation had already been received. The latter was sent through a messenger at 11.25 in the morning directly to the office of Laudico and should have been received immediately on that same morning, or at least, before Arias received the letter of acceptance. On this point we do not give any credence to the testimony of Laudico that he received this letter of revocation at 3.30 in the afternoon of that day. Laudico is interested in destroying the effect of this revocation so that the acceptance may be valid, which is the principal ground of his complaint.

But even supposing Laudico's testimony to be true, still the doctrine invoked has no application here. With regard to contracts between absent persons there are two principal theories, to wit, one holding that an acceptance by letter of an offer has no effect until it comes to the knowledge of the offerer, and the other maintaining that it is effective from the time the letter is sent.

The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to its most eminent commentators, it means that, before the acceptance is known, the offer can be revoked, it not being necessary, in order for the revocation to have the effect of impeding the perfection of the contract, that it be known by the acceptant. Q. Mucius Scaevola says apropros: "To our mind, the power to revoke is implied in the criterion that no contract exists until the acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds, since up to that moment there exists only a unilateral act, it is evident that he who makes it must have the power to revoke it by withdrawing his proposition, although with the obligation to pay such damages as may have been sustained by the person or persons to whom the offer was made and by whom it was accepted, if he in turn failed to give them notice of the withdrawal of the offer. This view is confirmed by the provision of article 1257, paragraph 2, concerning the case where a stipulation is made in favor of a third person, which provision authorizes the contracting parties to revoke the stipulation before the notice of its acceptance. That case is quite similar to that under comment, as said stipulation in favor of a third person (who, for the very reason of being a third person, is not a contracting party) is tantamount to an offer made by the makers of the contract which may or may not be accepted by him, and which does not have any effect until the obligor is notified, and may, before it is accepted, be revoked by those who have made it; therefore, the case being similar, the same rule applies."

Under the second theory, the doctrine invoked by the plaintiffs is sound, because if the sending of the letter of acceptance in itself really perfects the contract, the revocation of the offer, in order to prevent it, must be known to the acceptor. But this consideration has no place in the first theory under which the forwarding of the letter of acceptance, in itself,

14

does not have any effect until the acceptance is known by the person who has made the offer.

The judgment appealed from is reversed and the defendants are absolved from the complaint, without special finding as to costs. So ordered.

Article 1324

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., Petitioner, vs. COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD JIMENEZ, Respondents.law library

The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties.virtualawlibrary virtual law library

The records disclose the following antecedent facts which culminated in the present appellate review, to wit: virtual law library

1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2 situated in Barrio Culasi, Las Piñas, Metro Manila.virtualawlibrary virtual law library

2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents.virtualawlibrary virtual law library

3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions:

1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00) virtual law library

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989; virtual law library

3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party; virtual law library

4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the

VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC.

Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.virtualawlibrary virtual law library

4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7

5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase price to "lack of word of honor." virtual law library

6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively.virtualawlibrary virtual law library

7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.virtualawlibrary virtual law library

8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4.virtualawlibrary virtual law library

9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion.virtualawlibrary virtual law library

10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private respondents.virtualawlibrary virtual law library

11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial

15

Court of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention.virtualawlibrary virtual law library

12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs.virtualawlibrary virtual law library

13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the 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; that the suspension of payment constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code 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. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua.virtualawlibrary virtual law library

In the present petition, the following assignment of errors are raised: virtual law library

1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered into by petitioner and private respondents was strictly an option contract;virtual law library

2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not unilaterally and prematurely terminate the option period; virtual law library

3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and virtual law library

4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also without in fact and in law. 14

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale.

I virtual law library

1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is

important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a 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. 15

There are two features which convince us that the parties never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price.virtualawlibrary virtual law library

In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.virtualawlibrary virtual law library

Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." virtual law library

Secondly, it has 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. 17 Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. 18 However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner.virtualawlibrary virtual law library

2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract." virtual law library

The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be

16

discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell.virtualawlibrary virtual law library

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. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is simply 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. 24 Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, 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. 25

On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service.26 Contracts, in general, are perfected by mere consent, 27 which 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. 28

The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, 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. 29

A perusal of the contract in this case, as well as the oral and documentary evidence presented by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30

The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on

November 25, 1989, but it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby creating a perfected contract to sell between them.virtualawlibrary virtual law library

It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and well-defined. No other significance could be given to such acts that than they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties.virtualawlibrary virtual law library

We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, 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.virtualawlibrary virtual law library

At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract.virtualawlibrary virtual law library

More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property.virtualawlibrary virtual law library

The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed period was intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove otherwise.virtualawlibrary virtual law library

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. 33 There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner

17

to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence.virtualawlibrary virtual law library

This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case at bar.virtualawlibrary virtual law library

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,37 still we are not inclined to conform with the findings of respondent court and the court a quo that the contract executed between the parties is 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.virtualawlibrary virtual law library

In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.virtualawlibrary virtual law library

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40

II virtual law library

1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which provides:

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.

Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply.virtualawlibrary virtual law library

Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers.virtualawlibrary virtual law library

Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 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.virtualawlibrary virtual law library

2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents.virtualawlibrary virtual law library

The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as required by law.virtualawlibrary virtual law library

The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege of a right. consequently, performance or

18

payment may be effected not by tender of payment alone but by both tender and consignation.virtualawlibrary virtual law library

Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial court when this case was originally filed therein.virtualawlibrary virtual law library

By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present controversy.virtualawlibrary virtual law library

We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. 52

In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained.virtualawlibrary virtual law library

WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED.virtualawlibrary virtual law library

SO ORDERED.

Summary: Jardine Davies vs. Court of Appeals (GR 128066, 19 June

2000)

Jardine Davies vs. Court of Appeals 

[GR 128066, 19 June 2000], 

Facts: In 1992, at the height of the power crisis which the country was

then experiencing, and to remedy and curtail further losses due to the

series of power failures, Pure Foods Corporation 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 8 prospective bidders who attended the pre-

bidding conference, only 3 bidders, namely, Far East Mills Supply

Corporation (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. Immediately, FEMSCO submitted the required

performance bond in the amount of P1,841,187.90 and contractor's 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 FEMSCO's

Bidder's 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 cancelled the

award as "significant factors were uncovered and brought to (their)

attention which dictate (the) cancellation and warrant a total review and

re-bid 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. (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 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. On 27 June 1994 the Regional Trial Court of

Pasig, Branch 68, granted JARDINE's Demurrer to Evidence. On 28 July

1994 the trial court rendered a decision ordering PUREFOODS: (a) to

indemnify FEMSCO the sum of P2,300,000.00 representing the value of

engineering services it rendered; (b) to pay FEMSCO the sum of

US$14,000.00 or its peso equivalent, and P900,000.00 representing

contractor's mark-up on installation work, considering that it would be

impossible to compel PUREFOODS to honor, perform and fulfill its

contractual obligations in view of PUREFOOD's contract with JARDINE

and noting that construction had already started thereon; (c) to pay

attorney's fees in an amount equivalent to 20% of the total amount due;

and, (d) to pay the costs. The trial court dismissed the counterclaim filed

by PUREFOODS for lack of factual and legal basis. Both FEMSCO and

PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27

June 1994 Resolution of the trial court which granted the Demurrer to

Evidence filed by JARDINE resulting in the dismissal of the complaint

against it, while PUREFOODS appealed the 28 July 1994 Decision of the

same court which ordered it to pay FEMSCO. On 14 August 1996 the

Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial

court. It also reversed the 27 June 1994 Resolution of the lower court and

ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to

violate the latter's contract with FEMSCO. As such, JARDINE was ordered

to pay FEMSCO P2,000,000.00 for moral damages. In addition,

PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral

damages and P1,000,000.00 as exemplary damages as well as 20% of the

19

total amount due as attorney's fees. On 31 January 1997 the Court of

Appeals denied for lack of merit the separate motions for reconsideration

filed by PUREFOODS and JARDINE. Hence, 2 petitions for review filed

were by PUREFOODS and JARDINE which were subsequently

consolidated.

Issue: Whether FEMSCO is entitled to an award for moral damages.

Held: By the unilateral cancellation of the contract, PURE FOODS has

acted with bad faith and this was further aggravated by the subsequent

inking of a contract between Purefoods and Jardine. It is very evident that

Purefoods thought that by the expedient means of merely writing a letter

would automatically cancel or nullify the existing contract entered into by

both parties after a process of bidding. This 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. The Court has awarded in the past moral

damages to a corporation whose reputation has been besmirched. Herein,

FEMSCO has sufficiently shown that its reputation was tarnished after it

immediately ordered equipment from its suppliers on account of the

urgency of the project, only to be canceled later. The Court thus sustain

the appellate court's award of moral damages. The Court however

reduced the award from P2,000,000.00 to P1,000,000.00, as moral

damages are never intended to enrich the recipient. Likewise, the award

of exemplary damages by way of example for the public good is excessive

and should be reduced to P100,000.00. On the other hand, the appellate

court erred in ordering JARDINE to pay moral damages to FEMSCO as it

supposedly induced PUREFOODS to violate the contract with FEMSCO.

While it may seem that PUREFOODS and JARDINE connived to deceive

FEMSCO, there is no specific evidence on record to support such

perception. Likewise, there is no showing whatsoever that JARDINE

induced PUREFOODS. The similarity in the design submitted to

PUREFOODS by both JARDINE and FEMSCO, and the tender of a lower

quotation by JARDINE are insufficient to show that JARDINE indeed

induced PUREFOODS to violate its contract with FEMSCO.

[G.R. No. 128066. June 19, 2000]

JARDINE DAVIES INC., Petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, Respondents.

[G.R. No. 128069 June 19, 2000]

PURE FOODS CORPORATION, Petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, Respondents.

This is rather a simple case for specific performance with damages which could have been resolved through mediation and conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more arduous and long-drawn.

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 pre-bidding 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 -

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained amount shall be released thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance of project. The contract price includes future increase/s in costs of materials and labor;

2. The project shall be undertaken pursuant to the attached specifications. It is understood that any item required to complete the project, and those not included in the list of items shall be deemed included and covered and shall be performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

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 re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26

20

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.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, granted JARDINEs Demurrer to Evidence. The trial court concluded that "[w]hile 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." Meanwhile trial proceeded as regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. It also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since PUREFOODS never received FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But

granting arguendothat the award of moral damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

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.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in the consent - whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract.

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 "[a]dvertisements 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[8] 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

21

second merely gives the other party options and/or remedies to protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court -

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the Courts mind, there is already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to prospective bidders.

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, 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." After all, as earlier adverted to, an acceptance may either be express or implied,[10] and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's 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 PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by the appellate court -

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the Courts 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.

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages. We however

reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to P100,000.00.

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.

WHEREFORE , judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PURE FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addtion, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against petitioner.

SO ORDERED.

SPS. REYNALDO K. LITONJUA and ERLINDA P. LITONJUA and PHIL. WHITE HOUSE AUTO SUPPLY, INC., petitioners, vs. L & R CORPORATION, VICENTE COLOYAN in his capacity as Acting Registrar of the Register of Deeds of Quezon City thru Deputy Sheriff ROBERTO R. GARCIA, Respondents.

May a mortgage contract provide: (a) that the mortgagor cannot sell the mortgaged property without first obtaining the consent of the mortgagee and that, otherwise, the sale made without the mortgagees consent shall be invalid; and (b) for a right of first refusal in favor of the mortgagee? virtualawlibrary

The controversy stems from loans obtained by the spouses Litonjua from L & R Corporation in the aggregate sum of P400,000.00; P200,000.00 of which was obtained on August 6, 1974 and the remaining P200,000.00 obtained on March 27, 1978. The loans were secured by a mortgage constituted by the spouses upon their two parcels of land and the improvements thereon located in Cubao, Quezon City covered by Transfer Certificates of Title No. 197232 and 197233, with an area of 599 and 1,436 square meters, respectively. The mortgage was duly registered with the Register of Deeds of Quezon City. virtualawlibrary

On July 14, 1979, the spouses Litonjua sold to Philippine White House Auto Supply, Inc. (PWHAS) the parcels of land they had previously mortgaged to L & R Corporation for the sum of P430,000.00. The sale was annotated at the back of the respective certificates of title of the properties. virtualawlibrary

22

Meanwhile, with the spouses Litonjua having defaulted in the payment of their loans, L & R Corporation initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of Quezon City. On July 23, 1980, the mortgaged properties were sold at public auction to L & R Corporation as the only bidder for the amount of P221,624.58. When L & R Corporation presented its corresponding Certificate of Sale issued by Deputy Sheriff Roberto B. Garcia, to the Quezon City Register of Deeds for registration on August 15, 1980, it learned for the first time of the prior sale of the properties made by the spouses Litonjua to PWHAS upon seeing the inscription at the back of the certificates of title. Thus, on August 20, 1980, it wrote a letter to the Register of Deeds of Quezon City requesting for the cancellation of the annotation regarding the sale to PWHAS. L & R Corporation invoked a provision in its mortgage contract with the spouses Litonjua stating that the mortgagees prior written consent was necessary in case of subsequent encumbrance or alienation of the subject properties. Thus, it argued that since the sale to PWHAS was made without its prior written consent, the same should not have been registered and/or annotated. virtualawlibrary

On March 10, 1981, or seven months after the foreclosure sale, PWHAS, for the account of the spouses Litonjua, tendered payment of the full redemption price to L & R Corporation in the form of China Bank Managers Check No. HOF-M O12623 in the amount of P238,468.04. See Exhibits G & 2, Letter of PWHAS to L & R Corporation, id.6 L & R Corporation, however, refused to accept the payment, hence, PWHAS was compelled to redeem the mortgaged properties through the Ex-Oficio Sheriff of Quezon City. On March 31, 1981, it tendered payment of the redemption price to the Deputy Sheriff through China Bank Managers Check No. HOF-O14750 in the amount of P240,798.94. The check was deposited with the Branch Clerk of Court who issued Receipt No. 7522484 for the full redemption price of the mortgaged properties. Accordingly, the Deputy Sheriff issued a Certificate of Redemption in favor of the spouses Litonjua dated March 31, 1981. virtualawlibrary

In a letter of the same date, the Deputy Sheriff informed L & R Corporation of the payment by PWHAS of the full redemption price and advised it that it can claim the payment upon surrender of its owners duplicate certificates of title.] virtualawlibrary

On April 2, 1981, the spouses Litonjua presented for registration the Certificate of Redemption issued in their favor to the Register of Deeds of Quezon City. The Certificate also informed L & R Corporation of the fact of redemption and directed the latter to surrender the owners duplicate certificates of title within five days. virtualawlibrary

On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy furnished to the Register of Deeds, stating: (1) that the sale of the mortgaged properties to PWHAS was without its consent, in contravention of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that it was not the spouses Litonjua, but PWHAS, who was seeking to redeem the foreclosed properties, when under Articles 1236 and 1237 of the New Civil Code, the latter had no legal personality or capacity to redeem the same. virtualawlibrary

On the other hand, on May 8 and June 8, 1981, the spouses Litonjua asked the Register of Deeds to annotate their Certificate of Redemption as an adverse claim on the titles of the subject properties on account of the refusal of L & R Corporation to surrender the owners duplicate copies of the titles to the subject properties. With the refusal of the Register of Deeds to annotate their Certificate of Redemption, the Litonjua spouses filed a Petition on July 17, 1981 against L & R Corporation for the surrender of the owners duplicate of Transfer Certificates of Title No. 197232 and 197233 before the then Court of First Instance of Quezon City, Branch IV, docketed as Civil Case No. 32905. virtualawlibrary

On August 15, 1981, while the said case was pending, L & R Corporation executed an Affidavit of Consolidation of Ownership. Thereafter, on August 20, 1981, the Register of Deeds cancelled Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof, issued Transfer Certificates of Title No. 280054 and 28055 in favor of L & R Corporation, free of any lien or encumbrance. virtualawlibrary

With titles issued in its name, L & R Corporation advised the tenants of the apartments situated in the subject parcels of land that being the new owner, the rental payments should be made to them, and that new lease contracts will be executed with interested tenants before the end of August, 1981. Upon learning of this incident from their tenants, the spouses Litonjua filed an adverse claim and a notice of lis pendens with the Register of Deeds. In the process, they learned that the prior sale of the properties in favor of PWHAS was not annotated on the titles issued to L & R. virtualawlibrary

A complaint for Quieting of Title, Annulment of Title and Damages with preliminary injunction was filed by the spouses Litonjua and PWHAS against herein respondents before the then Court of First Instance of Quezon City, Branch 9, docketed as Civil Case No. Q-33362.  On February 10, 1987, the lower court rendered its Decision dismissing the Complaint upon its finding that the sale between the spouses Litonjua and PWHAS was null and void and unenforceable against L & R Corporation and that the redemption made was also null and void. virtualawlibrary

On appeal, the decision of the trial court was set aside by the Court of Appeals in its Decision dated June 22, 1994, on the ground that the sale made to PWHAS as well as the redemption effected by the spouses Litonjua were valid. However, the same was subsequently reconsidered and set aside in an Amended Decision dated September 11, 1997. virtualawlibrary

Hence, the instant Petition on the following issues: virtualawlibrary

(1) whether or not paragraphs 8 and 9 of the Real Estate Mortgage are valid and enforceable; virtualawlibrary

(2) whether or not the sale of the mortgaged properties by the spouses Litonjua to PWHAS, without the knowledge and consent of L & R Corporation, is valid and enforceable; virtualawlibrary

(3) whether or not PWHAS had the right to redeem the foreclosed properties on the account of the spouses Litonjua; and virtualawlibrary

(4) whether or not there was a valid redemption. virtualawlibrary

Paragraphs 8 and 9 of the subject Deed of Real Estate Mortgage read as follows virtualawlibrary

"8. That the MORTGAGORS shall not sell, dispose of, mortgage, nor in any other manner encumber the real property/properties subject of this mortgage without the prior written consent of the MORTGAGEE; virtualawlibrary

9. That should the MORTGAGORS decide to sell the real property/properties subject of this mortgage, the MORTGAGEE shall be duly notified thereof by the MORTGAGORS, and should the MORTGAGEE be interested to purchase the same, the latter shall be given priority over all the other prospective buyers; virtualawlibrary

There is no question that the spouses Litonjua violated both the aforesaid provisions, selling the mortgaged properties to PWHAS without the prior written consent of L & R Corporation and without giving the latter notice of such sale nor priority over PWHAS.

Re: Validity of prohibition against subsequent sale of mortgaged property without prior written consent of mortgagee and

validity of subsequent sale to PWHAS virtualawlibrary

Petitioners defend the validity of the sale between them by arguing that paragraph 8 violates Article 2130 of the New Civil Code which provides that (A) stipulation forbidding the owner from alienating the immovable mortgaged shall be void. virtualawlibrary

In the case of Philippine Industrial Co. v. El Hogar Filipino and Vallejo, a stipulation prohibiting the mortgagor from entering into second or

23

subsequent mortgages was held valid. This is clearly not the same as that contained in paragraph 8 of the subject Deed of Real Estate Mortgage which also forbids any subsequent sale without the written consent of the mortgagee. Yet, in Arancillo v. Rehabilitation Finance Corporation, the case of Philippine Industrial Co., supra, was erroneously cited to have held that the prohibition in a mortgage contract against the encumbrance, sale or disposal of the property mortgaged without the consent of the mortgagee is valid. No similar prohibition forbidding the owner of mortgaged property from (subsequently) mortgaging the immovable mortgaged is found in our laws, making the ruling in Philippine Industrial Co., supra, perfectly valid. On the other hand, to extend such a ruling to include subsequent sales or alienation runs counter not only to Philippine Industrial Co., itself, but also to Article 2130 of the New Civil Code. virtualawlibrary

Meanwhile in De la Paz v. Macondray & Co., Inc., it was held that while an agreement of such nature does not nullify the subsequent sale made by the mortgagor, the mortgagee is authorized to bring the foreclosure suit against the mortgagor without the necessity of either notifying the purchaser or including him as a defendant. At the same time, the purchaser of the mortgaged property was deemed not to have lost his equitable right of redemption. virtualawlibrary

In Bonnevie v. Court of Appeals, where a similar provision appeared in the subject contract of mortgage, the petitioners therein, to whom the mortgaged property were sold without the written consent of the mortgagee, were held as without the right to redeem the said property. No consent having been secured from the mortgagee to the sale with assumption of mortgage by petitioners therein, the latter were not validly substituted as debtors. It was further held that since their rights were never recorded, the mortgagee was charged with the obligation to recognize the right of redemption only of the original mortgagors-vendors. Without discussing the validity of the stipulation in question, the same was, in effect, upheld. virtualawlibrary

Again, in Cruz v. Court of Appeals, while a similar provision was recognized and applied, no discussion as to its validity was made since the same was not raised as an issue. virtualawlibrary

On the other hand, in Tambunting v. Rehabilitation Finance Corporation, the validity of a similar provision was specifically raised and discussed and found as invalid. It was there ratiocinated that -- virtualawlibrary

To be sure, the deed of second mortgage executed by the Escuetas in favor of Aurora Tambunting, married to Antonio L. Tambunting, does contain a provision that the property mortgaged shall not be x x x the subject of any new or subsequent contracts of agreements, saving and excepting those having connection with the first mortgage with the RFC, without first securing the written permission and consent of the MORTGAGEE. But the provision can only be construed as directed against subsequent mortgages or encumbrances, not to an alienation of the immovable itself. For while covenants prohibiting the owner from constituting a later mortgage over property registered under the Torrens Act have been held to be legally permissible (Phil. Industrial Co. v. El Hogar Filipino, et al., 45 Phil. 336, 341-342; Bank of the Philippines v. Ty Camco Sobrino, 57 Phil. 801), stipulations forbidding the owner from alienating the immovable mortgaged are expressly declared void by law (Art. 2130, Civil Code). It is clear that the stipulation against subsequent agreements above mentioned had not been breached by the assignment by the Escuetas (to the Hernandezes) of their right of redemption in connection with the mortgage constituted in favor of the R.F.C. The assignment was not a subsequent mortgage or encumbrance, licitly comprehended by the prohibitory stipulation, but was actually a sale or conveyance of all their rights in the encumbered real property in truth, an alienation of the immovable which could not lawfully be forbidden. Moreover, since the subject of the assignment to the Hernandezes had connection with the first assignment with the R.F.C., it did not fall within, but was explicitly excepted from, the prohibitory stipulation in question. Finally, it should not be forgotten that since the Tambuntings, in their own deed of conditional sale with the R.F.C., had accepted without demur the provision that said contract could be revoked within one (1) year from September 16, 1955 at the option of the

RFC, as vendor, should the former owner (Escueta) exercise his right to redeem the property; and that the redemption of the property within said period by the former owner or his successor-in-interest would render their instrument of conditional sale automatically null and void and without effect, they cannot now assume a position inconsistent with said provision. (underscoring, Ours) virtualawlibrary

Earlier, in PNB v. Mallorca, it was reiterated that a real mortgage is merely an encumbrance; it does not extinguish the title of the debtor, whose right to dispose a principal attribute of ownership is not thereby lost. Thus, a mortgagor had every right to sell his mortgaged property, which right the mortgagee cannot oppose. virtualawlibrary

In upholding the validity of the stipulation in question, the amended Decision relied on the cases of Cruz v. Court of Appeals, supra, and Medida v. Court of Appeals. According to the Court of Appeals, said cases, are not only more recent that of Tambunting, supra, but are also more applicable to the issue at bar. virtualawlibrary

We are not convinced. virtualawlibrary

As we have mentioned, although a similar provision was recognized and applied in Cruz v. Court of Appeals, supra, no discussion as to its validity was made since the same was not raised as an issue. Thus, it cannot be said that the specific pronouncement in the Tambunting case that such a stipulation can only be construed as against subsequent mortgages or encumbrances but not to an alienation of the immovable itself, which is prohibited under Article 2130, was abandoned thereby. On the other hand, the facts in the case of Medida v. Court of Appeals, are different from those in the present case for what was in issue in the said case was a second mortgage over a foreclosed property during the period of redemption. Thus, the ruling in Medida quoted in the Amended Decision that what is delimited is not the mortgagors jus dispodendi, as an attribute of ownership, but merely the rights conferred by such act of disposal which may correspondingly be restricted, actually refers to the fact that the only rights which a mortgagor can legally transfer, cede and convey after the foreclosure of his properties are the right to redeem the land, and the possession use and enjoyment of the same during the period of redemption. It has no connection or reference to the right of a mortgagor to sell his mortgaged property without the required consent of the mortgagee. To be sure, there is absolutely nothing in Medida that upholds the validity of the stipulation in controversy. virtualawlibrary

Insofar as the validity of the questioned stipulation prohibiting the mortgagor from selling his mortgaged property without the consent of the mortgagee is concerned, therefore, the ruling in theTambunting case is still the controlling law. Indeed, we are fully in accord with the pronouncement therein that such a stipulation violates Article 2130 of the New Civil Code. Both the lower court and the Court of Appeals in its Amended Decision rationalize that since paragraph 8 of the subject Deed of Real Estate Mortgage contains no absolute prohibition against the sale of the property mortgaged but only requires the mortgagor to obtain the prior written consent of the mortgagee before any such sale, Article 2130 is not violated thereby. This observation takes a narrow and technical view of the stipulation in question without taking into consideration the end result of requiring such prior written consent. True, the provision does not absolutely prohibit the mortgagor from selling his mortgaged property; but what it does not outrightly prohibit, it nevertheless achieves. For all intents and purposes, the stipulation practically gives the mortgagee the sole prerogative to prevent any sale of the mortgaged property to a third party. The mortgagee can simply withhold its consent and thereby, prevent the mortgagor from selling the property. This creates an unconscionable advantage for the mortgagee and amounts to a virtual prohibition on the owner to sell his mortgaged property. In other words, stipulations like those covered by paragraph 8 of the subject Deed of Real Estate Mortgage circumvent the law, specifically, Article 2130 of the New Civil Code. virtualawlibrary

Being contrary to law, paragraph 8 of the subject Deed of Real Estate Mortgage is not binding upon the parties. Accordingly, the sale made by the spouses Litonjua to PWHAS, notwithstanding the lack of prior written consent of L & R Corporation, is valid.

24

Re: Validity of redemption effected by PWHAS on the account of the spouses Litonjua virtualawlibrary

Coming now to the issue of whether the redemption offered by PWHAS on account of the spouses Litonjua is valid, we rule in the affirmative. The sale by the spouses Litonjua of the mortgaged properties to PWHAS is valid. Therefore, PWHAS stepped into the shoes of the spouses Litonjua on account of such sale and was in effect, their successor-in-interest. As such, it had the right to redeem the property foreclosed by L & R Corporation. Again, Tambunting, supra, clarifies that virtualawlibrary

x x x. The acquisition by the Hernandezes of the Escuetas rights over the property carried with it the assumption of the obligations burdening the property, as recorded in the Registry of Property, i.e., the mortgage debts in favor of the RFC (DBP) and the Tambuntings. The Hernandezes, by stepping into the Escuetas shoes as assignees, had the obligation to pay the mortgage debts, otherwise, these debts would and could be enforced against the property subject of the assignment. Stated otherwise, the Hernandezes, by the assignment, obtained the right to remove the burdens on the property subject thereof by paying the obligations thereby secured; that is to say, they had the right of redemption as regards the first mortgage, to be exercised within the time and in the manner prescribed by law and the mortgage deed; and as regards the second mortgage, sought to be judicially foreclosed but yet unforeclosed, they had the so-called equity of redemption. virtualawlibrary

The redemption of PWHAS to redeem the subject properties finds support in Section 6 of Act 3135 itself which gives not only the mortgagor-debtor the right to redeem, but also his successors-in-interest. As vendee of the subject properties, PWHAS qualifies as such a successor-in-interest of the spouses Litonjua.

Re: Validity of redemption made virtualawlibrary

It is clear from the records that PWHAS offered to redeem the subject properties seven (7) months after the date of registration of the foreclosure sale, well within the one year period of redemption.

Re: Validity and enforceability of stipulation granting the mortgagee the right of first refusal virtualawlibrary

While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is concerned. Said paragraph 9 grants upon L & R Corporation the right of first refusal over the mortgaged property in the event the mortgagor decides to sell the same. We see nothing wrong in this provision. The right of first refusal has long been recognized as valid in our jurisdiction. The consideration for the loan-mortgage includes the consideration for the right of first refusal. L & R Corporation is in effect stating that it consents to lend out money to the spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L & R Corporation shall be given the right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell their mortgaged property to PWHAS without securing the prior written consent of L & R Corporation, it had the obligation under paragraph 9, which is a perfectly valid provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It is only upon failure of L & R Corporation to exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to others, under the same terms and conditions offered to L & R Corporation. virtualawlibrary

What then is the status of the sale made to PWHAS in violation of L & R Corporations contractual right of first refusal? On this score, we agree with the Amended Decision of the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co v. Bonnevie is instructive on this point virtualawlibrary

The respondent court correctly held that the Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests

that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease. virtualawlibrary

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for one of the contracting parties and eventhird persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. (underscoring, Ours) virtualawlibrary

It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible. virtualawlibrary

In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to notice to the whole world. virtualawlibrary

We note that L & R Corporation had always expressed its willingness to buy the mortgaged properties on equal terms as PWHAS. Indeed, in its Answer to the Complaint filed, L & R Corporation expressed that it was ready, willing and able to purchase the subject properties at the same purchase price of P430,000.00, and was agreeable to pay the difference between such purchase price and the redemption price of P249,918.77, computed as of August 13, 1981, the expiration of the one-year period to redeem. That it did not duly exercised its right of first refusal at the opportune time cannot be taken against it, precisely because it was not notified by the spouses Litonjua of their intention to sell the subject property and thereby, to give it priority over other buyers. virtualawlibrary

All things considered, what then are the relative rights and obligations of the parties? To recapitulate:, the sale between the spouses Litonjua and PWHAS is valid, notwithstanding the absence of L & R Corporations prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its offer to redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within the one-year period should have been accepted as valid by L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporations right of first refusal. virtualawlibrary

Foreseeing a possible rescission of the sale, the spouses Litonjua contend that with the restoration of the original status quo, with no sale having been made, they should now be allowed to redeem the subject properties, the period of redemption having been suspended during the period of litigation. In effect, the spouses Litonjua want to retain ownership of the same. We cannot, however, sanction this belated reversal of the spouses Litonjuas decision to sell. To do so would afford them undue advantage on account of the appreciation of the value of the subject properties in the intervening years when they precisely were the ones who violated and ignored the right of first refusal of L & R Corporation over the same. Moreover, it must be stressed that in rescinding the sale made to PWHAS, the purpose is to uphold and enforce the right of first refusal of L & R Corporation. virtualawlibrary

WHEREFORE, the Decision appealed from is hereby AFFIRMED with the following MODIFICATIONS: virtualawlibrary

(a) Ordering the rescission of the sale of the mortgaged properties between petitioners spouses Reynaldo and Erlinda Litonjua and Philippine White House Auto Supply, Inc. and ordering said spouses to return to Philippine White House Auto Supply, Inc. the purchase price of P430,000.00; virtualawlibrary

25

(c) Disallowing, due to the rescission of the sale made in its favor, the redemption made by Philippine White House Auto Supply, Inc. and ordering Quezon City Sheriff Roberto Garcia to return to it the redemption check of P240,798.94; virtualawlibrary

(d) Allowing respondent L & R Corporation to retain its consolidated titles to the foreclosed properties but ordering it to pay to the Litonjua spouses the additional sum of P189,201.96 representing the difference from the purchase price of P430,000.00 in the rescinded sale; virtualawlibrary

(e) Deleting the awards for moral and exemplary damages and attorneys fees to the respondents. No pronouncement as to costs. virtualawlibrary

SO ORDERED. virtualawlibrary

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, Plaintiff-Appellee, vs. SEVERINA RIGOS, Defendant-Appellant.

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law.virtualawlibrary virtual law library

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 ... to sell" to Sanchez 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 Pl,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.virtualawlibrary virtual law library

After the filing of defendant's 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 attorney's fees, and other costs. Hence, this appeal by Mrs. Rigos.virtualawlibrary virtual law library

This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:

ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.virtualawlibrary virtual law library

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.

In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the

contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.virtualawlibrary virtual law library

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.virtualawlibrary virtual law library

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: virtual law library

(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.virtualawlibrary virtual law library

(2) 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 can not 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. Plaintiff herein has not even alleged the existence thereof in his complaint.virtualawlibrary virtual law library

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3that:

One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)

This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5 virtual law library

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article provides:

26

"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.virtualawlibrary virtual law library

An accepted unilateral promise to buy or 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."

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:

"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration as something paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee.virtualawlibrary virtual law library

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price.virtualawlibrary virtual law library

We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a

separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral contract of sale.virtualawlibrary virtual law library

Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that:

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.) virtual law library

"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts - the offer and the acceptance - could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)

In other words, 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.virtualawlibrary virtual law library

This view has the advantage of avoiding a conflict between Articles 1324 - on the general principles on contracts - and 1479 - on sales - of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision inSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.virtualawlibrary virtual law library

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed abandoned or modified.virtualawlibrary virtual law library

WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered.

27

28