ARTICLE 1308 Although escalation clauses are valid in maintaining fiscal stability and retaining the value of

money on long-term contracts, giving respondent an unbridled right to adjust the interest
SAMPAGUITA BUILDERS v PNB independently and upwardly would completely take away from petitioners the “right to
assent to an important modification in their agreement” and would also negate the element
Mini digest: Sampaguita loaned money from PNB. PNB unilaterally increased rates of interest of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts
in the loan w/o informing Sampaguita. PNB claimed they were authorized to do it as there “dependent exclusively upon the uncontrolled will” of respondent and was therefore void.
was a clause in the agreement that they may do so. Besides, Usury law was no longer in force Besides, the pro forma promissory notes have the character of a contract d’adhésion, “where
= SC said NO! PNB cannot do so; it will violate mutuality of contracts under 1308. Besides, SC
the parties do not bargain on equal footing, the weaker party’s [the debtor’s] participation
may intervene when amount of interest is unconscionable.
being reduced to the alternative ‘to take it or leave it.’”
Facts:
Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the
properties of Sampaguita’s president and chairman of the board. Sampaguita also executed Circular that lifted the ceiling of interest rates of usury law did not authorize either party to
several promissory notes due on different dates (payment dates). The first promissory note unilaterally raise the interest rate without the other’s consent.
had 19.5% interest rate. The 2 nd and 3rd had 21.5%. a uniform clause therein permitted PNB to
increase the rate “within the limits allowed by law at any time depending on whatever policy the interest ranging from 26 percent to 35 percent in the statements of account -- “must be
it may adopt in the future x x x,” without even giving prior notice to petitioners. There was
equitably reduced for being iniquitous, unconscionable and exorbitant.” Rates found to be
also a clause in the promissory note that stated that if the same is not paid 2 years after
release then it shall be converted to a medium term loan – and the interest rate for such loan iniquitous or unconscionable are void, as if it there were no express contract thereon. Above
would apply. all, it is undoubtedly against public policy to charge excessively for the use of money.

Later on, Sampaguita defaulted on its payments and failed to comply with obligations on It cannot be argued that assent to the increases can be implied either from the June 18, 1991
promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan. Again request of petitioners for loan restructuring or from their lack of response to the statements
they defaulted, so they asked for loan restructuring. It partly paid the loan and promised to of account sent by respondent. Such request does not indicate any agreement to an interest
pay the balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the
increase; there can be no implied waiver of a right when there is no clear, unequivocal and
mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so
they filed a case in court asking sampaguita to pay for deficiency. decisive act showing such purpose. Besides, the statements were not letters of information
sent to secure their conformity; and even if we were to presume these as an offer, there was
RTC found that Sampaguita was automatically entitled to the debt relief package of PNB and no acceptance. No one receiving a proposal to modify a loan contract, especially interest -- a
ruled that the latter had no cause of action against the former. CA reversed, saying vital component -- is “obliged to answer the proposal.”
Sampaguita was not entitled, thus ordered them to pay the deficiency – Appeal = Went to SC.
Sampaguita claims the loan was bloated so they don’t really owe PNB anymore, but it just
Besides, PNB did not comply with its own stipulation that should the loan not be paid 2 years
overcharged them!
after release of money then it shall be converted to a medium term loan.
Issues/Ruling:
W/N the loan accounts are bloated: YES. There is no deficiency; there is actually an *Court applied 12% interest rate instead for being a forbearance of money
overpayment of more than 3M based on the computation of the SC.
Whether PNB could unilaterally increase interest rates: NO (there were some pieces of evidence presented by PNB in court that sampaguita objected to.
Lower courts overruled the objections but SC said the objections were correct and the
Ratio:
evidence should not have been admitted. i.e. contract wasn’t signed by the parties, a part of
Sampaguita’s accessory duty to pay interest did not give PNB unrestrained freedom to charge
the contract wasn’t properly annexed/no reference was made in the main contract.)
any rate other than that which was agreed upon. No interest shall be due, unless expressly
stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that
In addition to the preceding discussion, it is then useless to labor the point that the increase
could be subsequently upgraded at whim by only one party to the agreement.
in rates violates the impairment clause of the Constitution, because the sole purpose of this
provision is to safeguard the integrity of valid contractual agreements against unwarranted
The “unilateral determination and imposition” of increased rates is “violative of the principle
interference by the State in the form of laws. Private individuals’ intrusions on interest rates
of mutuality of contracts ordained in Article 1308 of the Civil Code.” One-sided impositions
is governed by statutory enactments like the Civil Code
do not have the force of law between the parties, because such impositions are not based on
the parties’ essential equality.
ARTICLE 1311 stipulation is a stipulation pour auturi and under Article 1311 of the Civil Code, De Jesus may
demand its fulfillment provided he communicated his acceptance to Mandarin before its
MANDARIN VILLA v CA revocations. IN the case at bar, De Jesus’ offer to pay by means of his BANKARD credit card
constitutes not only as an acceptance of the said stipulation but also an explicit
FACTS: communication of his acceptance to the obligor.

In the evening of October 19, 1989, private respondent De Jesus, a practicing lawyer and In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood
businessman, hosted a dinner for his friends at Mandarin Villa Seafoods Village Greenhills, Village stating that "Bankard is accepted here. This representation is conclusive upon the
Mandaluyong City. After the dinner, the waiter handed to him the bill in the amount of petitioner which it cannot deny or disprove as against De Jesus, the party relying thereon.
P2658.50. De Jesus offered to pay the bill through his credit card issued by Philippine Mandarin, therefore, cannot disclaim its obligation to accept De Jesus' BANKARD credit card
Commercial Credit Card Inc. (BANKARD). This card was accepted by the waiter. Ten minutes without violating the equitable principle of estoppel.
later, the waiter returned and audibly informed De Jesus that his card had expired. De Jesus
argued that his card had yet to expire on September 1990, as embossed on its face. The UY v CA
waiter was unmoved thus De Jesus and two of his guests approached the restaurant’s cashier
Facts:
who again passed the credit card over the verification computer. The same information was
produced (Card Expired). De Jesus and his two guests returned to their table and one of the
W. Uy and R. Roxas are agents with power to sell 8 parcels of land by the owners thereof.
guests (Professor Lirag) uttered “ Cloddy (Clodualdo De Jesus) may problema ba? Baka
Under such power, they offered to sell the lands, located in Benguet to National
kailangang maghugas na kami ng pinggan?” De Jesus left the restaurant and got his BPI
Housing Authority (NHA) to be utilized and developed as a housing project.
Express Credit Card from his card and offered it to pay their bill. This was accepted and
honored by the cashier after verification. On Valentines day of 1989, the NHA Board passed a Resolution approving the acquisition of
said lands, with an area of 31.8231 hectares, at the cost of P23.867 million, pursuant to which
Subsequently, De Jesus filed a suit for damages for his humiliation and embarrassment.
the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the 8
parcels of land, however, only 5 were paid for by the NHA.1
TC ruled in De Jesus’ favor and awarded moral and exemplary damages and attorney’s fees
and litigation expenses.
On 1991, the NHA issued a new Resolution cancelling thesale over the 3 parcels of land.
The NHA, through Resolution 2394, subsequently offered the amount of P1.225 million
Mandarin and Bankard appealed to CA and CA held that Mandarin is solely responsible for
to the landowners as daños perjuicios.
damages in favor of De Jesus.
Aggrieved at the loss of a sale, March 1992, Uy and Roxas filed before the RTC Quezon
ISSUE:
City a Complaint for Damagesa gainst NHA and its General Manager Robert Balao. After
1. Whether petitioner is bound to accept payment by means of credit card trial, the RTC rendered a decision declaring thecancellation of the contract to be justified. To
the glee of Uy and Roxas, the trial court still awarded damages to plaintiffs 2.
RULING: YES
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and
Mandarin Villa Seafood Village is affiliated with BANKARD. Mandarin and BANKARD entered entered a new one dismissing the complaint. It held that since there was “sufficient justifiable
into agreement which states that basis” in cancelling the sale,“it saw no reason” for the award of damages. 3

The MERCHANT shall honor validly issued PCCCI credit cards presented by their Issue:
corresponding holders in the purchase of goods and/or services supplied by it
provided that the card expiration date has not elapsed and the card number does not
1
appear on the latest cancellation bulletin of lost, suspended and canceled PCCCI A report NHA received from the DENR confi rmed that the remaining
area is located at an notorious landslid e area and therefor e, not suit able for development into a
credit cards and, no signs of tampering, alterations or irregularities appear on the face
housing project.
of the credit card.
2
In th esum of P1.255 million, the same amount initially offered by NHA to petitioners as damages.
While De Jesus may not be a party to the said agreement, the above-quoted stipulation 3
The Court of Appeals found noted that petitioners were mere attorneys-in-fact and, therefore, not the real
conferred a favor upon DE Jesus, a holder of credit card validly issued by BANKARD. This parties-in-interest in the action before the trial court. This is a side REM issue.
w/n the award of damages were proper. Neither has there been any allegation, much less proof, that petitioners are the heirs of their
principals.
Held:
Are petitioners assignees to the rights under the contracts of sale? In McMicking vs. Banco
The Supreme Court denied the petition and affirmed the CA. Español-Filipino, the SC held that the rule requiring every action to be prosecuted in the
name of the real party-in-interest. 7
Action must be prosecuted in the name of a party whose right is sought to be enforced. The
Petitioners are not the real parties. The SC thought otherwise. Petitioners have not shown that they are assignees of their
principals to the subject contracts. While they alleged that they made advances and that
The SC held that cases construing the real party-in-interestp rovision can be more easily
they suffered loss of commissions, they have not established any agreement granting them
understood if it is borne in mind that the true meaning of real party-in-interest may be
“the right to receive payment and out of the proceeds to reimburse for advances and
summarized as follows: An action shall be prosecuted in the name of the party who, by the
commissions before turning the balance over to the principal.”
substantive law, has the right sought to be enforced. In this case, Uy et al are not the proper parties
to advance the case.4 Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under
the second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any
Actions submitted by an attorney-in-fact in his name and not in the name of his principal
of the Deeds of Absolute Sale “clearly and deliberately” conferring a favor to any third
must be dismissed
person.
Where the action is brought by an attorney-in-fact of a land owner in his name, (as in
That petitioners did not obtain their commissions or recoup their advances because of the
our presentaction) and not in the name of his principal, the action was properly dismissed 5
non-performance of the contract did not entitle them to file the action below against
respondent NHA.
Pertinent Civil Law Provision: Article 1311
If a contract should contain some stipulation in favor of a third person, he may demand its
The primary question: do petitioners, under substantive law, possess the right they seek to
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
enforce? The SC responded in the negative..
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
The applicable substantive law in this case is Article 1311 of the Civil Code 6 have clearly and deliberately conferred a favor upon a third person. 8

The SC found that the Petitioners are not parties to the contract of sale between their
principals and NHA. They are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on behalf of their
principals. The rendering of such service did not make them parties to the contracts of sale
executed in behalf of the latter. Since a contract may be violated only by the parties thereto
as against each other, the real parties-in-interest, either as plaintiff or defendant, in an action
upon that contract must, generally, either be parties to said contract.

4
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in the name of
the real party-in-interest. The real party-in-interest is the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. “Interest,” within the meaning of therule, means material
interest, an interest in the issue and to be affected by the decree, as distinguished frommere interest in the question 7
x x x recognizes the assignments of rights of action and also recognizes that when one has a right of action assigned to
involved, or a mere incidental interest.
5 him he is then the real party in interest and may maintain an action upon such claim or right. The purpose of [this rule]
Citing Ferrer vs. Villamor, 60 SCRA406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175 is to require the plaintiff to be the real party in interest, or, in other words, he must be the person to whom the proceeds
because the rule is that every action must be prosecuted inthe name of the real parties-in-interest of the action shall belong, and to prevent actions by persons who have no interest in the result of the same. xxx

6 8
Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations Agents rendering service in behalf of parties do not render them parties to the contract of sale
arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. x x x. Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the owners
of the land subject of the sale. As agents, they only render some service or do something in representation or on behalf
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he of their principals. The rendering of such service did not make them parties to the contracts of sale executed in behalf of
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-in-interest,
not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. either as plaintiff or defendant, in an action upon that
 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,
ARTICLE 1324 however, of the nature of an offer to sell which, if accepted, results in a perfected contract of
sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case
SANCHES v RIGOS(Bayona) and deemed abandoned or modified the view adhered to in the Southwestern Company case

FACTS:

In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant-

appellant Severina Rigos "agreed, promised and committed ... to sell" to plaintiff-appellee
Nicolas Sanchez for the sum of P1,510.00 within two (2) years from said date, a parcel of land
situated in the barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed 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. On March 12, 1963, Sanchez deposited the sum of
Pl,510.00 with the CFI of Nueva Ecija and filed an action for specific performance and
damages against Rigos for the latter’s refusal to accept several tenders of payment that
Sanchez made to purchase the subject land.

Defendant Rigos contended that the contract between them was only “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." Plaintiff Sanchez, on the other hand, alleged in his compliant 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. The lower court
rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez
judicially consigned, and to execute in his favor the requisite deed of conveyance. The Court
of Appeals certified the case at bar to the Supreme Court for it involves a question purely of
law.

ISSUE: Was there a contract to buy and sell between the parties or only a unilateral promise
to sell?

HELD:

The Supreme Court affirmed the lower court’s decision. The instrument executed in 1961 is
not a "contract to buy and sell," but merely granted plaintiff an "option" to buy, as indicated
by its own title "Option to Purchase." The option did not impose upon plaintiff Sanchez the
obligation to purchase defendant Rigos' property. Rigos "agreed, promised and committed"
herself to sell the land to Sanchez 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. The lower court
relied upon Article 1354 of the Civil Code when it presumed the existence of said
consideration, but the said Article only applies to contracts in general.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in
the case at bar because the latter’s 2nd paragraph refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid
 purview of an option under the second paragraph of Article 1479, or possibly of an offer
under Article 1319 of the same Code. An option or an offer would require, among other
ANG YU v CA things, a clear certainty on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made determinate, the exercise
of the right, however, would be dependent not only on the grantor’s eventual intention to
Facts:
enter into a binding juridical relation with another but also on terms, including the price, that
Ang Yu (buyers) are tenants/lessees of the residential and commercial properties owned by obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely
Co Unjieng (vendors). On several occasions, defendants informed plaintiffs that they are belonging to a class of preparatory juridical relations governed not by contracts (since the
offering to sell the premises and are giving them priority to acquire the same. Respondents essential elements to establish the vinculum juris would still be indefinite and inconclusive)
offered to sell the property for P6M, and plaintiffs counter-offered to buy for P5M. Plaintiffs but by, among other laws of general application, the pertinent scattered provisions of the
asked the respondents to put the offer in writing, in which the respondents acceded. Upon Civil Code on human conduct.
receipt of the offer, plaintiffs asked the respondents to specify the terms and conditions of
the offer to sell. Since no response was made by the respondents, plaintiffs were compelled
Even on the premise that such right of first refusal has been decreed under a final judgment,
to file a complaint against respondents compelling them to sell the property.
like here, its breach cannot justify correspondingly an issuance of a writ of execution under a
judgment that merely recognizes its existence, nor would it sanction an action for specific
The lower court decided in favor or the respondents reasoning that since parties did not
performance without thereby negating the indispensable element of consensuality in the
agree upon the terms and conditions of the proposed sale, hence there was not contract of
perfection of contracts. It is not to say, however, that the right of first refusal would be
sale at all. Further, it ruled that if the respondents decide to sell the proper for P11M or
inconsequential for, such as already intimated above, an unjustified disregard thereof, given,
lower, then plaintiffs have the right of first refusal. Aggrieved by the decision, plaintiffs
for instance, the circumstances expressed in Article 19 of the Civil Code, can warrant a
appealed to CA.
recovery for damages.
The Court of Appeals affirmed the decision of the lower court with modification: that there
was no meeting of the minds between the parties concerning the sale of the property. Absent The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a
such requirement, the claim for specific performance will not lie. Appellants’ demand for “right of first refusal” in favor of petitioners. In fine, if, as it is here so conveyed to us,
actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for petitioners are aggrieved by the failure of private respondents to honor the right of first
its award.” CA however granted the plaintiffs the right of first refusal even if the offer price refusal, the remedy is not a writ of execution on the judgment, since there is none to execute,
exceeds P11M. but an action for damages in a proper forum for the purpose.

Plaintiffs appealed to the Supreme court but was denied for being insufficient in form and Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
substance. While plaintiff asked the SC for reconsideration, respondents transferred the purchaser of the property, has acted in good faith or bad faith and whether or not it should,
properties in question to respondent Buen Realty and Development Corporation for P15M. in any case, be considered bound to respect the registration of the lis pendens in Civil Case
No. 87-41058 are matters that must be independently addressed in appropriate proceedings.
Buen Realty after the properties came into its possession and after the titles had been issued Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to
under its name, plaintiffs were asked to vacate the premises. Plaintiffs brought the matter to the writ of execution issued by respondent Judge, let alone ousted from the ownership and
the trial court to enforce the decision rendered by the CA that plaintiffs has the right of first possession of the property, without first being duly afforded its day in court.
refusal. The lower court ordered respondents to sell the property to plaintiffs for P15M.
Respondents appealed to CA.
EQUATORIAL v MAYFAIR (Capocyan)
The CA reversed the judgment of the lower court declaring that it has no force and effect.
FACTS: Carmelo (Petitioner) owned a 2-storey bldg in Recto, Manila. In 1967 and 1969, he
Hence this appeal for certiorari.
entered into 2 separate CONTRACTS OF LEASE with Mayfair for the lease of 2 portions of the
Issue: the bldg which the latter used as a motion picture theater known as MAXIM and MIRAMAR
THEATER. Both lease contracts contained an identically worded paragraph 8 which reads:
WON petitioners can demand specific performance to compel the respondents to sell to
them the property “If the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
Held:
No. What the petitioners have been granted is just a mere ‘right of first refusal’. In the law on In the event, however, that the leased premises is sold to someone other than the LESSEE, the
sales, the so-called “right of first refusal” is an innovative juridical relation. Needless to point LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed
out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and
Neither can the right of first refusal, understood in its normal concept, be brought within the conditions thereof.”
In 1974 Carmelo informed Mayfair that they wanted to sell the entire property ( and that a Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be
certain JOSE ARANETA was offering to buy the whole property for 1.2M USD. They also asked legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the
Mayfair if they wanted to buy the property for P6-7M. trial court failed to appreciate was the intention of the parties behind the questioned proviso.

Mayfair replied stating par 8 of their contract and communicating his willingness to purchase The provision in question is not of the pro-forma type customarily found in a contract of
the entire property. Carmelo did not reply. lease. Even appellees have recognized that the stipulation was incorporated in the two
Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was
In 1978, Carmelo sold the property to Equitorial or P11.3M. This prompted Mayfair to file a intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide,
case for specific performance and annulment of the sale. during the term of the lease, to sell the leased property. This intention of the parties is
achieved in two ways in accordance with the stipulation. The first is by giving Mayfair "30-
RTC – Ruled in favor of Carmelo stating, among other things, that paragraph 8 of the contract
days exclusive option to purchase" the leased property. The second is, in case Mayfair would
is an “option clause” (under Art 1324) which is not supported by a separate consideration.
opt not to purchase the leased property, "that the purchaser (the new owner of the leased
Under Art 1352, “Contracts without cause or with unlawful cause, produce no effect
property) shall recognize the lease and be bound by all the terms and conditions thereof."
whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or
public policy.” Therefore contracts without consideration produce no effect. In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving
Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide
CA – Reversed the CA saying that paragraph 8 is not an “option contract/clause” under 1324
Mayfair the opportunity to purchase and acquire the leased property in the event that
but a “right of first refusal” under 1479, which does not need a separate distinct
Carmelo should decide to dispose of the property. In order to realize this intention, the
consideration.
implicit obligation of Carmelo once it had decided to sell the leased property, was not only to
notify Mayfair of such decision to sell the property, but, more importantly, to make an offer
ISSUE: W/N paragraph 8 is an option contract/ clause which needs a separate consideration.
to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to
NO, its a right of first refusal.
accept or reject the offer, before offering to sell or selling the leased property to third parties.
RATIO: Article 1324 speaks of an "offer" made by an offeror which the offeree may or may The right vested in Mayfair is analogous to the right of first refusal, which means that
not accept within a certain period. Under this article, the offer may be withdrawn by the Carmelo should have offered the sale of the leased premises to Mayfair before offering it to
offeror before the expiration of the period and while the offeree has not yet accepted the other parties, or, if Carmelo should receive any offer from third parties to purchase the leased
offer. However, the offer cannot be withdrawn by the offeror within the period if a premises, then Carmelo must first give Mayfair the opportunity to match that offer.
consideration has been promised or given by the offeree in exchange for the privilege of
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the
being given that period within which to accept the offer. The consideration is distinct from
requirement of distinct consideration indispensable in an option contract, has no application,
the price which is part of the offer. The contract that arises is known as option. In the case of
respondent appellate court also addressed the claim of Carmelo and Equatorial that
Beaumont the SC, defined an option as follows: "A contract by virtue of which A, in
assuming arguendo that the option is valid and effective, it is impossible of performance
consideration of the payment of a certain sum to B, acquires the privilege of buying from or
because it covered only the leased premises and not the entire Claro M. Recto property, while
selling to B, certain securities or properties within a limited time at a specified price."
Carmelo's offer to sell pertained to the entire property in question.
Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral
promise to buy or to sell a determinate thing for a price within (which) is binding upon the
promisee if the promise is supported by a consideration distinct from the price." That
*Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may
"unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. be withdrawn at any time before acceptance by communicating such withdrawal, except
An "offer", in laws, is a proposal to enter into a contract.. when the option is founded upon a consideration, as something paid or promised.
**Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days demandable.
exclusive option to purchase" the leased premises is NOT AN OPTION. Although the provision An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
is certain as to the object (the sale of the leased premises) the price for which the object is to binding upon the promissor if the promise is supported by a consideration distinct from the
be sold is not stated in the provision. Otherwise stated, the questioned stipulation is not by price.
itself, an "option" or the "offer to sell" because the clause does not specify the price for the
subject property.
BIBLE BAPTIST CHURCH v CA
Facts: rental equivalent to monthly rent of P7,000 for one year, such that for the entire year from
1985 to 1986 the Baptist Church did not pay monthly rent.
Petitioner Baptist Church entered into a contract of lease with private respondent spouses The consideration contemplated to support an option contract need not be monetary. Actual
Villanueva, the latter being the registered owners of the property. The pertinent stipulations cash need not be exchanged for the option. However, by the very nature of an option
in the lease contract were: contract, as defined in Article 1479, the same is an onerous contract for which the
consideration must be something of value, although its kind may vary.

An option contract needs to be supported by a separate consideration. The consideration

xxx
need not be monetary but could consist of other things or undertakings. However, if the
consideration is not monetary, these must be things or undertakings of value, in view of the
8. That the LESSEE has the option to buy the leased premises during the Fifteen (15) years of
onerous nature of the contract of option. Furthermore, when a consideration for an option
the lease. If the LESSEE decides to purchase the premises the terms will be: A) A selling Price
contract is not monetary, said consideration must be clearly specified as such in the option
of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency. B) A down
contract or clause.
payment agreed upon by both parties. C) The balance of the selling price may be paid at the
rate of One Hundred Twenty Thousand Pesos (P120,000.00), Philippine Currency, per year.
VILLEGAS v CA
xxx
Facts:

The Reyes Family were the owners of the subject property, which they inherited the property
The foregoing stipulations of the lease contract are the subject of the present controversy. from their father, Dr. Lorenzo C. Reyes. Villegas and Sanchez were the lessees of the property
Petitioner Baptist Church paid an initial P84,000 rental payment. This was disputed by since 1959. Petitioner-lessees owned the building and improvements constructed on the
petitioners as the consideration for the option to buy the property. property.

Issue: Whether or not the option to buy was founded upon a consideration The Administrative Committee of the heirs of Dr. Lorenzo C. Reyes informed petitioner-
lessees that the heirs have decided to sell the property. After replying, the Administrative
Ruling: NO. Committee informed petitioner-lessees of their receipt of notice of the P4,000,000 bid price.
The Administrative Committee wrote that they requested petitioner-lessees to increase their
Under Article 1479 of the Civil Code, it is provided: bid for the property but the latter failed to make another offer so the heirs have decided to
sell to another buyer who offered a higher price. Nevertheless, the Administrative Committee
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally indicated in the letter that they would wait for a reply. Petitioner-lessees were willing to make
demandable. a nominal increase to their bid price of P4,000,000 but the Administrative Committee sent a
letter to petitioner-lessees replied that they have an offer of P5 Million. A conference was
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
held, but the parties did not come into an agreement. Eventually, petitioner-lessees have
binding upon the promissor if the promise is supported by a consideration distinct from the
finally accepted the asking price of P5,000,000.00, but without payment of taxes and other
price.
costs.
The second paragraph of Article 1479 provides for the definition and consequent rights and
However at this time, only 75% share thereof, were still interested in selling their shares. They
obligations under an option contract. For an option contract to be valid and enforceable
also rejected the offer of petitioner-lessees, as they wanted the purchase price to be net
against the promissor, there must be a separate and distinct consideration that supports it.
sales. Eventually, respondent-heirs sold their 75% undivided interest in the property for
First, petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' P3,825,000 to Lita Sy. The other heirs sold the remaining 25% portion of the property to
property from the mortgage should be deemed the separate consideration to support the Villegas.
contract of option. It must be pointed out that said amount was in fact apportioned into
monthly rentals spread over a period of one year, at P7,000 per month. Thus, for the entire
period of June 1985 to May 1986, petitioner Baptist Church's monthly rent had already been Petitioner-lessees filed an action against respondent-heirs and Spouses Sy which the RTC
paid for, such that it only again commenced paying the rentals in June 1986. This is shown by dismissed. This was affirmed by the CA. During this period, the Spouses Sy filed a complaint
the testimony of petitioner Pastor Belmonte where he states that the P84,000 was advance
for Specific Performance against the heirs of Villegas, which the RTC granted. This was Petitioner-lessees admit that there was an ongoing negotiation for the sale of the property.
affirmed by the CA. Precisely, the P5,000,000 price for the property indicated by the Administrative Committee in
the letter was superseded by the subsequent offer of respondent-heirs during the
Issue: conference. Thus, the letter of petitioner-lessees is merely another counter-offer for the
property in their continuing negotiation for the property. When petitioner-lessees opted not
1. Whether the contract of sale between respondent-heirs and Lita Sy violated the right of
to respond to this offer, respondent-heirs had the right to sell the property to other buyers.
first refusal of petitioner-lessees (relevant issue)
Petitioner-lessees already exercised their right of first refusal when they refused to respond
2. Whether Lita Sy, as co-owner of the property, validly and seasonably exercised her right to
to the latest offer of respondent-heirs, which amounted to a rejection of the offer. Upon
redeem the 25% undivided interest in the property, which undivided interest the other co-
petitioner-lessees’ failure to respond to this latest offer of respondent-heirs, the latter could
owners had sold to Atanacio M. Villegas and Agripino M. Villegas
validly sell the property to other buyers under the same terms and conditions offered to
petitioner-lessees.
Ruling:
2. NO. The records reveal that Lita Sy received the complaint for Annulment of Deed of
1. NO. A right of first refusal is a contractual grant, not of the sale of a property, but of the
Sale/Title, Specific Performance, and Consignation of Rentals with Damages filed by
first priority to buy the property in the event the owner sells the same. The exercise of the
petitioner-lessees. On the same date, Lita Sy also received together with the complaint the
right of first refusal is dependent not only on the owner’s eventual intention to sell the
Deed of Sale of the 25% portion of the property.
property but also on the final decision of the owner as regards the terms of the sale including
the price.
Lita Sy and the other defendants in that case filed their answer. In their answer, Lita Sy
invoked her right to redeem the property.
When a lease contains a right of first refusal, the lessor has the legal duty to the lessee not to
sell the leased property to anyone at any price until after the lessor has made an offer to sell
The ruled however, that there was no valid and effective offer to redeem the 25% undivided
the property to the lessee and the lessee has failed to accept it. Only after the lessee has
interest in the property. Although Lita Sy invoked her right to redeem the property in the
failed to exercise his right of first priority could the lessor sell the property to other buyers
answer filed with the RTC Branch 2, she failed to consign in court the redemption price. Well-
under the same terms and conditions offered to the lessee, or under terms and conditions
settled is the rule that a formal offer to redeem must be accompanied by a valid tender of the
more favorable to the lessor.
redemption price and that the filing of a judicial action, plus the consignation of the
redemption price within the period of redemption, is equivalent to a formal offer to redeem.
The records show that the heirs of Dr. Lorenzo C. Reyes did recognize the right of first refusal
Only by such means can the buyer become certain that the offer to redeem is one made
of petitioner-lessees over the property. This is clear from the letter dated 19 May 1988
seriously and in good faith. A buyer can not be expected to entertain an offer of redemption
informing petitioner-lessees that the property they were leasing is for sale. There was an
without attendant evidence that the redemptioner can, and is willing to, accomplish the
exchange of letters between the Administrative Committee and petitioner-lessees evidencing
repurchase immediately. While consignation of the tendered price is not always necessary
the offer and counter-offer of both parties.
because legal redemption is not made to discharge a pre-existing debt, a valid tender is
Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration indispensable, for the reasons already stated. Of course, consignation of the price would
of the time given for its acceptance. The offer may also be terminated when the person to remove all controversy as to the petitioner's ability to pay at the proper time.
whom the offer is made either rejects the offer outright or makes a counter-offer of his own.
In this case, Lita Sy failed to consign in court the redemption price when she invoked her right
to redeem the 25% portion of the property in the answer filed with the RTC Branch 2. The
evidence does not show that Lita Sy ever tendered the redemption price to the Villegas
The offer of P5,000,000 already lapsed when petitioner-lessees failed to accept it within the brothers. Considering that there was no tender of the redemption price, nor was there
period granted. The offer was superseded by the new offer of respondent-heirs during the consignation of the redemption price, we hold that there was no valid exercise of the right of
conference. However, it appears from the records that no settlement was reached between redemption.
the parties during their conference. Even petitioner-lessees’ witness Miranda testified that
petitioner-lessees did not indicate their offer for the property in their letter but instead EULOGIO v SPOUSES APELES(Kim Claudio)
requested for a conference with all the heirs of Dr. Lorenzo C. Reyes.
Facts:
In 1979, Sps. Apeles leased their house and lot in QC to Arturo Eulogio, Enrico’s father. Upon price within a certain time. He does not sell his land; he does not then agree to sell it; but he
his father’s death, Enrico succeeded as lessee. He used the property as his residence and does sell something, i.e., the right or privilege to buy at the election or option of the other
place of business. He was engaged in buying and selling imported cars. On 1987, Sps. Apeles party. Its distinguishing characteristic is that it imposes no binding obligation on the person
and Eulogio allegedly entered into a contract of lease with an option to purchase involving holding the option, aside from the consideration for the offer.
the said property. According to the contract, Atty. Luz Apeles was authorized to enter in
behalf of her husband Clemente. The contract gave Enrico before the expiration of the three- It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the
year lease period the option to purchase the property for a price not exceeding P1.5million. Civil Code:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
Before the expiration, Enrico exercised his option to purchase by communicating verbally and demandable.
in writing to Luz but the spouses ignored his manifestation. This prompted Enrico to seek the An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
help of the barangay to enforce his right to purchase the subject property, but despite several binding upon the promissor if the promise is supported by a consideration distinct from the
notices, the spouses failed to appear before the barangay for settlement proceedings. Hence, price.
it issued to Enrico a Certificate to File Action. The second paragraph of Article 1479 provides for the definition and consequent rights and
obligations under an option contract. For an option contract to be valid and enforceable
Enrico filed a case with the RTC claiming his right based on paragraph 5 of the Contract of against the promissor, there must be a separate and distinct consideration that supports it.
Lease with Option to Purchase vesting him the right to acquire ownership of the subject In this case, there was none.
property after paying the agreed amount of consideration. He testified for himself as the sole
witness. As to the other issue, Enrico’s insistence on the infallibility of the findings of the RTC seriously
impairs the discretion of the appellate tribunal to make independent determination of the
On the other hand, the spouses denied that Luz signed the contract claiming that the merits of the case appealed before it. Certainly, the Court of Appeals cannot swallow hook,
signature of Luz therein is a forgery. They presented some specimens of her signature to line, and sinker the factual conclusions of the trial court without crippling the very office of
show the difference. They also established by documentary evidence that Luz was out of the review. Although we have indeed held that the factual findings of the trial courts are to be
country at the time of the execution of the contract. In rebuttal, Enrico said that Luz signed accorded great weight and respect, they are not absolutely conclusive upon the appellate
the contract upon returning to the Philippines and that she took it with her and upon court. However, it must be noted that in an appeal via Rule 41 to the CA, the parties may
returning it to him, it was already notarized. The RTC ruled in favor of Enrico. raise both questions of fact and law.

The spouses appealed to the CA which granted their appeal. Enrico filed an MR but was
denied. Hence, this case.

Issue:
W/N the option to purchase was enforceable. NO
W/N the CA erred in disturbing the factual findings of the RTC as regards the contract. NO

Held:
The Contract with an Option to Purchase remains unenforceable. An option is a contract by
which the owner of the property agrees with another person that the latter shall have the
right to buy the former’s property at a fixed price within a certain time. It is a condition
offered 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.

An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of
property but a sale of the right to purchase. It is simply a contract by which the owner of the
property agrees with another person that he shall have the right to buy his property at a fixed
 The law is thus in the Salvadors’ favor. Article 1544 of the Civil Code so provides:

ARTICLE 1345 Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
PAYONGAYONG v CA faith, if it should be movable property.

Facts: Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property. Should there be no inscription, the
Eduardo Mendoza was the registered owner of a two hundred square meter parcel of land ownership shall pertain to the person who in good faith was first in the possession; and, in
situated in Barrio San Bartolome, Caloocan. Mendoza mortgaged the parcel of land to the the absence thereof, to the person who presents the oldest title, provided there is good faith.
Meralco Employees Savings and Loan Association (MESALA) to secure a loan in the amount of
P81,700.00. Mendoza then executed a Deed of Sale with Assumption of Mortgage over the There being double sale of an immovable property, as the above-quoted provision instructs,
parcel of land together with all the improvements thereon (hereinafter referred to as the ownership shall be transferred (1) to the person acquiring it who in good faith first recorded it
property) in favor of the Payongayong spouses in consideration of P50,000.00. It is stated in in the Registry of Property; (2) in default thereof, to the person who in good faith was first in
the deed that the Payongayongs bound themselves to assume payment of the balance of the possession; and (3) in default thereof, to the person who presents the oldest title, provided
mortgage indebtedness of Mendoza to MESALA. Mendoza, without the knowledge of the there is good faith.
spouses, mortgaged the same property to MESALA to secure a loan in the amount of
Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately
P758,000.00, and was duly annotated in Mendoza’s title. Thereafter, Mendoza executed a
made by agreement of the parties, in order to produce, for the purpose of deception, the
Deed of Absolute Sale over still the same property in favor of the private respondents
appearance of a juridical act which does not exist or is different from that which was really
Salvador spouses, in consideration of P50,000.00. The sale was again duly annotated in
executed. Its requisites are: a) an outward declaration of will different from the will of the
Mendoza’s title. MESALA, on its part, issued a Cancellation of Mortgage acknowledging that
parties; b) the false appearance must have been intended by mutual agreement; and c) the
for sufficient and valuable consideration which it received from Mendoza, it was cancelling
purpose is to deceive third persons.
and releasing the real estate mortgage over the property which was annotated on Mendoza’s
title. The Salvador spouses then caused the cancellation of Mendoza’s title and was issued a The basic characteristic then of a simulated contract is that it is not really desired or intended
transfer certificate of title in their own name. to produce legal effects or does not in any way alter the juridical situation of the parties.

Upon knowledge of the property’s sale to the Salvador spouses, the Payongayongs filed a The cancellation of Mendoza’s certificate of title over the property and the procurement of
complaint for annulment of deed of absolute sale and transfer certificate of title with one in its stead in the name of respondents, which acts were directed towards the fulfillment
recovery of possession and damages before the RTC of Quezon City. The Payongayongs’ of the purpose of the contract, unmistakably show the parties’ intention to give effect to their
complaint alleged that the spouses Mendoza maliciously sold to the Salvadors the property agreement. The claim of simulation does not thus lie.
which was priorly sold to them and that the Salvadors acted in bad faith in acquiring it, the
latter having had knowledge of the existence of the Deed of Absolute Sale with Assumption
of Mortgage between them (Payongayongs) and Mendoza. The RTC ruled in favor of the
Salvadors and CA affirmed the same.

Issue:

Whether or not the deed of sale executed by Eduardo Mendoza in favor of the Salvador
spouses was simulated and therefore null and void?

Ruling:

No. The Salvadors did not only rely upon Mendoza’s title. Rosalia personally inspected the
property and verified with the Registry of Deeds of Quezon City if Mendoza was indeed the
registered owner. Given this factual backdrop, the Salavadors did indeed purchase the
property in good faith and accordingly acquired valid and indefeasible title thereto.
ARTICLE 1354
LAW v OLYMPIC SAWMILL

Plaintiff loaned P10,000.00, without interest, to defendant. The loan became due but was not
paid, with the debtors asking for an extension of three months.

The parties executed another loan document. Payment of the P10,000.00 was extended but
the obligation was increased by P6,000.00 as follows:

That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine currency

shall form part of the principal obligation to answer for attorney's fees,
legal interest, and other cost incident thereto to be paid unto the creditor
and his successors in interest upon the termination of this agreement.

Defendants again failed to pay and plaintiff instituted this collection case. Defendants
admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00
constituted usurious interest.

An Order was issued by the Trial Court allowing both parties to submit a Motion for Summary
Judgment. The Trial Court rendered decision ordering defendants to pay plaintiff "the amount
of P10,000.00 plus the further sum of P6,000.00 by way of liquidated damages . . . with legal
rate of interest on both amounts. Defendants appealed.

ISSUE: w/n the amount of P6,000 was illegal?

NO.
Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to
the P6,000.00 obligation, "it is presumed that it exists and is lawful, unless the debtor
proves the contrary". No evidentiary hearing having been held, it has to be concluded that
defendants had not proven that the P6,000.00 obligation was illegal. Confirming the Trial
Court's finding, we view the P6,000.00 obligation as liquidated damages suffered by
plaintiff, representing loss of interest income, attorney's fees and incidentals.

Defendants claim that the P6,000.00 constituted usurious interest. They insist the claim of
usury should have been deemed admitted by plaintiff as it was "not denied specifically and
under oath" as required by the Usury Law. However, the SC held that the rule does not apply
to a case, as in the present case, where the defendant, not the plaintiff, who is alleging usury.
It only applies where a complaint is filed against an entity which has committed usury, for the
recovery of the usurious interest paid. Moreover, usury has been legally non-existent. Interest
can now be charged as lender and borrower may agree upon.
 It would appear that the complaint in this case described several circumstance indicating
partial performance: relinquishment of rights continued possession, building of
improvements, tender of payment plus the surveying of the lot at plaintiff's expense and the
ARTICLE 1403 payment of rentals.

ORTEGA v LEONARDO Hence, as there was partial performance, the principle excluding parol contracts for the sale
of realty, does not apply.
Facts: Plaintiff and defendant claimed right of ownership over a parcel of land located in San
Andres, Manila before the Rural Progress Administration (government). During the
investigation of such conflicting interests, defendant asked plaintiff to desist from pressing
CARBONEL v PONCIO
her claim and definitely promised that if and when he succeeded in getting title to the lot, he
would sell to her a portion thereof with an area of 55.60 sqm at P25.00 per sqm, provided
she paid for the surveying and subdivision of the lot and provided further that after he FACTS:
acquired title, she could continue holding the lot as tenant by paying a monthly rental of
P10.00 until said portion shall have been segregated and the purchase price fully paid. Carbonnel purchased Poncio’s land for an initial payment of P247.26 with the balance
payable upon execution of the deed of sale and assumed Poncio’s mortgage with the
The plaintiff accepted defendant's offer, and desisted from further claiming the lot. The Republic Savings Bank. In a document written in Batanes dialect, they agreed that Poncio
defendant finally acquired title thereto. The plaintiff, according to the agreement, caused would continue staying in said land for one year. However, Poncio sold the same property to
the survey and segregation of the portion which defendant had promised to sell incurring the Infantes. Carbonnel sued Poncio and the Infantes for the annulment of the sale, for her to
expenses for subdivision. Plaintiff continued paying rentals and introduced improvements be declared owner of the land, for Poncio to execute the deed of sale, for the Register of
over the said lot. After the plan of the lot segregation was approved, plaintiff tendered to Deeds of Rizal to issue the corresponding title, and for defendants pay damages.
defendant the purchase price which the latter refused to accept without any cause or reason.
Defendants filed an MTD on the ground that Carbonnel's claim was unenforceable under the
Issue: Whether the oral agreement to sell the lot to plaintiff is enforceable.
Statute of Frauds. MTD denied. In their Answer, the Infantes alleged that they purchased the
land in question in good faith, for value, and without knowledge of the alleged sale to
Held: YES. as exception to the general rule because of partial performance.
Carbonnel, and that her claim was unenforceable under the Statute of Frauds. In his Answer,
Poncio alleged that he had consistently turned down several offers made by Carbonnel at
Ratio:
P15/sqm; that Mrs. Infante, likewise, tried to buy the land; that he was advised by Carbonnel
that should she decide to buy the property , she would allow him to remain in the property
“The continuance in possession may, in a proper case, be sufficiently referable to the parol
for one year; that Carbonnel then induced him sign a document "relying upon the statement
contract of sale to constitute a part performance thereof. There may be additional acts or
of Carbonnel that the document was a permit for him to remain in the premises in the event
peculiar circumstances which sufficiently refer the possession to the contract. Continued
that Poncio decided to sell the property to Carbonnel at P20/sqm"; that Mrs. Infante
possession under an oral contract of sale, by one already in possession as a tenant, has been
improved her offer and he agreed to sell to her the land and its improvements; and that
held a sufficient part performance, where accompanied by other acts which characterize the
Carbonnel's action is barred by the Statute of Frauds.
continued possession and refer it to the contract of purchase. Especially is this true where the
circumstances of the case include the making of substantial, permanent, and valuable
improvements." (49 American Jurisprudence — 44) During trial, Carbonnel introduced witness Meonada, who said that he typed the document
signed by the 3 of them which stated that Poncio would be allowed to stay in the land bought
"The making of valuable permanent improvements on the land by the purchaser, in by Carbonnel. Carbonnel also testified that that day Poncio told her that he wanted to sell his
pursuance of the agreement and with the knowledge of the vendor, has been said to be the property, that after both agreed on its price, he said that his lot is mortgaged to the Republic
strongest and the most unequivocal act of part performance by which a verbal contract to sell Savings Bank; and that at noon time, on the same day, he came back stating that both would
land is taken out of the statute of frauds, and is ordinarily an important element in such part "go to the bank to pay the balance in arrears." At this juncture, defense counsel moved to
performance. Possession by the purchaser under a parol contract for the purchase of real strike out the statement of the witness, invoking, in support of the motion, the Statute of
property, together with his making valuable and permanent improvements on the property Frauds. After an extended discussion, the parties agreed to submit memoranda and the
which are referable exclusively to the contract, in reliance on the contract, in the honest hearing was suspended.
belief that he has a right to make them, and with the knowledge and consent or acquiescence
of the vendor, is deemed a part performance of the contract. The entry into possession and The CFI dismissed the complaint on the ground that the cause of action was unenforceable
the making of the improvements are held on amount to such an alteration in the purchaser's under the Statute of Frauds. The appellate court affirmed. The SC reversed and remanded.
position as will warrant the court's entering a degree of specific performance." (49 American
Jurisprudence p.755, 756.) ISSUE: W/N the Statute of Frauds is applicable?
RULING: NO. Apart from the foregoing, there are also other circumstances indicating that Carbonnel's
claim might not be entirely devoid of factual basis. For instance, Poncio admitted in his
RATIO: Answer that Carbonnel had offered several times to purchase his land. There is also the
document signed by Poncio written in Batanes dialect, which, according to Carbonnel's
uncontradicted evidence, is the one spoken by, Poncio, he being a native of said region. The
It is well settled in this jurisdiction that the Statute of Frauds is applicable only to executory
document states that Poncio would stay in the land sold by him to Carbonnel for one year,
contracts, not to contracts that are totally or partially performed. In the words of former
free of charge, and that, if he cannot find a place where to transfer his house thereon, he may
Chief Justice Moran: "The reason is simple. In executory contracts there is a wide field for
remain in said lot under such terms as may be agreed upon. Incidentally, the allegation in
fraud because unless they be in writing there is no palpable evidence of the intention of the
Poncio's answer to the effect that he signed the document under the belief that it "was a
contracting parties. The statute has precisely been enacted to prevent fraud." However, if a
permit for him to remain in the premises in the event" that "he decided to sell the property"
contract has been totally or partially performed, the exclusion of parol evidence would
to Carbonnel at P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed, if he had
promote fraud or bad faith, for it would enable the defendant to keep the benefits already
not decided as yet to sell the land to Carbonnel, who, had never increased her offer of P15 a
denied by him from the transaction in litigation, and, at the same time, evade the obligations,
square meter, there was no reason for Poncio to get said, Permit from her. Upon the other
responsibilities or liabilities assumed or contracted by him thereby.
hand, if Carbonnel intended to mislead Poncio, she would have caused the document to be
drafted, probably in English, instead of taking the trouble of seeing to it that it was written
For obvious reasons, it is not enough for a party to allege partial performance in order precisely in his native dialect, the Batanes. Moreover, Poncio's signature on the document
to hold that there has been such performance and to render a decision declaring that the suggests that he is neither illiterate nor so ignorant as to sign a document without reading its
Statute of Frauds is inapplicable. But neither is such party required to establish such partial contents, apart from the fact that Meonada had read the document to him and given him a
performance by documentary proof before he could have the opportunity to introduce oral copy thereof, before he signed thereon, according to Meonada's uncontradicted testimony.
testimony on the transaction. Indeed, such oral testimony would usually be unnecessary if
there were documents proving partial performance. Thus, the rejection of any and all
Then, also, defendants say in their brief:
testimonial evidence on partial performance, would nullify the rule that the Statute of Frauds
is inapplicable to contracts which have been partly executed, and lead to the very evils that
the statute seeks to prevent. The only allegation in Carbonnel's complaint that bears any relation to her claim
that there has been partial performance of the supposed contract of sale, is the
notation of the sum of P247.26 in the bank book of Poncio. It does not prove the
The true basis of the doctrine of part performance according to the overwhelming
fact that said amount was the purchase price of the property in question. For all we
weight of authority, is that it would be a fraud upon the plaintiff if the defendant
knew, the sum of P247.26 which Carbonnel claims to have paid to the Republic
were permitted to escape performance of his part of the oral agreement after he
Savings Bank for the account of the defendant, assuming that the money paid to
has permitted the plaintiff to perform in reliance upon the agreement. The oral
the Republic Savings Bank came from the plaintiff, was the result of some usurious
contract is enforced in harmony with the principle that courts of equity will not
loan or accommodation, rather than earnest money or part payment of the land.
allow the statute of frauds to be used as an instrument of fraud. In other words, the
Neither is a competent or satisfactory evidence to prove the conveyance on the
doctrine of part performance was established for the same purpose for which, the
land in question the fact that the bank book account of Poncio happens to be in the
statute of frauds itself was enacted, namely, for the prevention of fraud, and arose
possession of the Carbonnel.
from the necessity of preventing the statute from becoming an agent of fraud for it
could not have been the intention of the statue to enable any party to commit a
fraud with impunity. How shall we know why Poncio's bank deposit book is in Carbonnel's possession or whether
there is any relation between the P247.26 entry therein and the partial payment of P247.26
allegedly made by Carbonnel to Poncio on account of the price of his land, if we do not allow
When the party concerned has pleaded partial performance, such party is entitled to a
Carbonnel to explain it on the witness stand? Without expressing any opinion on the merits
reasonable chance to; establish by parol evidence the truth of this allegation, as well as the
of Carbonnel's claim, it is clear, therefore, that she is entitled, legally as well as from the
contract itself. "The recognition of the exceptional effect of part performance in taking an oral
viewpoint of equity, to an opportunity to introduce parol evidence in support of her
contract out of the statute of frauds involves the principle that oral evidence is admissible in
allegations.
such cases to prove both the contract and the part performance of the contract."

BABAO v PEREZ
Upon submission of the case for decision on the merits, the Court should determine whether
said allegation is true, bearing in mind that parol evidence is easier to concoct and more likely
Facts:
to be colored or inaccurate than documentary evidence. If the evidence of record fails to
prove clearly that there has been partial performance, then the Court should apply the
Celestina Perez is the owner of a 156-hectare parcel of land. When Celestina’s niece
Statute of Frauds, if the cause of action involved falls within the purview thereof. If the Court
married Santiago Babao, it was alleged that on 1924, Santiago and Celestina had a verbal
is, however, convinced that the obligation in question has been partly executed and that the
agreement where Santiago was bound to do the following: to improve the land(156 hectares)
allegation of partial performance was not resorted to as a devise to circumvent the Statute,
of Celestina by leveling, clearing, planting fruits and other crops; to act as the administrator
then the same should not be applied.
of the land and all expenses for labor and materials will be at his cost. In return, Celestina is state that Santiago Babao has fully complied with his part within the year from the alleged
bound to convey to Santiago or his wife(Celestina’s niece) ½ of the land, with all the contract in question.
improvements after the death of Celestina. Santiago alleged that he was able to clear the The went on and said that assuming that partial performance may suffice,
land and plant the crops in the span of 23 years. Santiago’s cause will still not prosper. Since this is a sale of real property, it must be noted
However, shortly before Celestina’s death, she(Celestina) sold the land to another that this statute is one based on equity. It is based on equitable estoppel or estoppel by
party through her attorney-in-fact(Leovigildo). Thus, Santiago filed this complaint alleging the conduct. It operates only under certain specified conditions and when adequate relief of law
sale of the land as fraudulent and fictitious and in violation of the oral agreement. He prays to is unavailable (49 Am. Jur., Statute of Frauds, Section 422, p. 727). And one of the requisites
recover the ½ land or the expenses he incurred in improving the land. that need be present is that the agreement relied on must be certain, definite, clear,
Respondents, however, denied the claim and among others claimed that by virtue unambiguous and unequivocal in its terms before the statute may operate. In the case at bar,
of the statute of frauds, the oral agreement cannot be given credence. The trial court allowed the alleged agreement was vague for it does not specify how many hectares was to be
parole evidence to be introduced to substantiate the agreement. This is now appealed to the planted to coconuts, how many to rice and corn, and what portion to bananas and bamboo
Court to determine if parole evidence could be introduced. trees.
Having reached the conclusion that all the parol evidence of appellee was
Issue: submitted in violation of the Statute of Frauds, or of the rule which prohibits testimony
against deceased persons, we find unnecessary to discuss the other issues raised in
Whether the verbal agreement falls within the Statute of Frauds despite partial appellants' brief.
performance.
The case is dismissed, with costs against appellee.
Held:

Yes, the statute, formerly incorporated as Section 21 of Rule 123 of our Rules of CABAGUE v AUXILIO
Court, is now found in Article 1403 of the new Civil Code, which provides, in so far as
pertinent to this case, as follows:
Facts:
In the following cases an agreement hereafter made shall be
enforceable by action unless the same, or some note or In the justice of the peace court of Basud, Camarines Norte, Felipe Cabague and his son
memorandum thereof, be in writing, and subscribed by the Geronimo sued the defendant Matias Auxilio and his daughter Socorro to recover damages
party charged or by his agent, evidence therefore, of the resulting from defendants' refusal to carry out the previously agreed marriage between
agreement cannot be received without the writing, or Socorro and Geronimo.
secondary evidence of its contents;
The complaint alleged, in short: (a) that defendants promised such marriage to plaintiffs,
(a) An agreement that by its terms is not to be performed provided the latter would improve the defendants' house in Basud and spend for the wedding
within a year from the making thereof. feast and the needs of the bride; (b) that relying upon such promises plaintiffs made the
improvement and spent P700; and (c) that without cause defendants refused to honor their
(e) An agreement . . . for the sale of real property or of an pledged word.
interest therein.
The defendants moved to dismiss, arguing that the contract was oral, unenforceable under
In order to remove the oral agreement from the statute of frauds, the agreement the rule of evidence hereinbefore mentioned. And the court dismissed the case. On appeal to
must be for less than a year as provided in Art. 1403 (a) [at present in Art. 1403 (2)(a)]. In the the Court of First Instance, the plaintiffs reproduced their complaint and defendants
case at bar, it is clear that the undertaking as alleged in the agreement cannot be done in a reiterated their motion to dismiss. From an order of dismissal this appeal was perfected in
period of one (1) year as in fact alleged by Santiago that it took him 23 years to perform his due time and form.
obligation.
However, Santiago additionally contends that performance of the contract also
It should be observed preliminarily that, under the former rules of procedure, when the
remove it from the statute of frauds. In answering such contention, SC said that contracts
complaint did not state whether the contract sued on was in writing or not, the statute of
which by their terms are not to be performed within one year, may be taken out of the
frauds could be no ground for demurrer. Under the new Rules "defendant may now present a
statute through performance by one party thereto. However, it is required in such case the
motion to dismiss on the ground that the contract was not in writing, even if such fact is not
complete performance within the year by one party. In this case, Santiago was not able to
apparent on the face of the complaint. The fact may be proved by him." (Moran Rules of
completely perform the contract within a year from its perfection but it took him many years
Court 2d ed. p. 139 Vol. I.)
(23 years) before the agreement was performed. Nothing less than full performance by one
party will suffice and if anything remains to be done after the expiration of the year
besides the mere payment of money, the statute will apply. It is not therefore correct to Issue:
According to the Rules of Court parol evidence is not admissible to prove an agreement made
upon the consideration of marriage other than a mutual promise to marry. This litigation calls
for application of that rule.

Court’s Ruling:

There is no question here that the transaction was not in writing. The only issue is whether it
may be proved in court.

Wherefore this expediente will be returned to the lower court for further proceedings in
accordance with this opinion. So ordered.

Rationale:

The understanding between the plaintiffs on one side and the defendants on the other, really
involves two kinds of agreement. One, the agreement between Felipe Cabague and the
defendants in consideration of the marriage of Socorro and Geronimo. Another, the
agreement between the two lovers, as "a mutual promise to marry". For breach of that
mutual promise to marry, Geronimo may sue Socorro for damages. This is such action, and
evidence of such mutual promise is admissible. However Felipe Cabague's action may not
prosper, because it is to enforce an agreement in consideration of marriage. Evidently as to
Felipe Cabague and Matias Auxilio this action could not be maintained on the theory of
"mutual promise to marry". Neither may it be regarded as action by Felipe against Socorro
"on a mutual promise to marry."

Consequently, we declare that Geronimo may continue his action against Socorro for such
damages as may have resulted from her failure to carry out their mutual matrimonial
promises.

Paras, C.J., Pablo, Padilla, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.
 Since the terms of [the] second agreement are manifestly and grossly disadvantageous to the
government the contract is contrary to law, being violative of RA 3019, and the public officers
ARTICLE 1409 responsible thereof are liable under Section 3(g) of [RA 3019]. Considering that the cause or
consideration of the second contract is contrary to law, the same is void (Art. 1352, Civil
LA’O v REPUBLIC (De Castro) Code). Also, it was contended that the 2nd agreement was not yet approved by the president;
yet was taken possession of and leased to 3rd parties with rent and profits obtained.
I. FACTS: GSIS is the registered owner of 3 parcels of land in Ermita with an area of around
821 m2, a 5-storey building and improvements. GSIS and the RP, through the Office of the Considering the 2nd lease agreement to be void, petitioner should pay for the office space he
Government Corporate Counsel (OGCC), entered into 2 contracts: had been occupying and to account for and to return to the Republic, though the OGCC, all
moneys he unjustly received, including those received from such tenant-lessees as rentals,
1. A "lease-purchase" agreement on June 22, 1978 where GSIS agreed to transfer the with interest at the legal rate until fully paid. Nullification of the contract was sought.
property to the OGCC for P1.5 million, payable in equal yearly amortization-lease rentals
of P100,000 for a period of 15 years. RTC ruled in favor of respondents and declared the 2nd lease-purchase agreement null and
void. It also ordered the forfeiture in favor of respondents of the purchase price paid by
On December 22, 1980, petitioner offered to purchase the property.
petitioner to GSIS as well as the rentals received by petitioner. The CA affirmed.
2. On May 10, 1982, GSIS and petitioner executed a second "lease-purchase" agreement.
GSIS agreed to sell the same property to petitioner for P2,000,000, with a down II. ISSUE: WON the 2nd contract valid as claimed by petitioner, or null and void as decided by
payment of P200,000 and the balance payable within a period of 15 years at 12% the RTC and affirmed by the CA
interest per annum, compounded yearly.
Under this second contract, GSIS obligated itself to construct for the OGCC a 3-storey III. HELD: YES, Null and void. Decision affirmed.
building on the Manila Bay reclaimed area OR to make available another property
acceptable to the OGCC, to be conveyed to the RP under the same or mutually IV. RATIO: The second contract was null and void ab initio for being in contravention of
acceptable terms as those of the first contract. In the meantime, the OGCC was allowed Section 3(e) and (g) of RA 3019, otherwise known as the "Anti-Graft and Corrupt Practices
to continue occupying the second to the fifth floors of the building at an annual rental of Act". Both the trial and appellate courts found that the second contract gave petitioner
P100,000, payable to petitioner. Furthermore, petitioner was entitled to lease out the unwarranted benefits and was grossly disadvantageous to the government. Under Article
ground floor and collect the corresponding rentals. 1409(7) of the Civil Code, the contract was null and void from the beginning.

Pres. Marcos and the Board of Trustees of GSIS approved the contract by signing their The Agreement between [petitioner] and the GSIS which is the subject of the instant case
signatures on the same. had in fact transferred the economic benefits which the Republic used to enjoy to
[petitioner]. At the end of [15] years, [petitioner] shall become the absolute owner of the
In 1989, after the overthrow of Marcos (in 1986), respondents filed before the RTC of Manila subject property upon full payment of the [15] yearly amortizations. At bottom, however, is
a complaint against petitioner alleging that: the fact that, at least for the first [five] years of the [Agreement], [petitioner] shall not be
shelling out of his own pocket the yearly amortization since the same shall be covered by the
Upon petitioner’s behest and representations, then Pres. Marcos directed the transfer of the annual rental coming from the OGCC and the other tenants thereof. In the meantime, the
property to petitioner. By reason of insidious machinations, the RP, through the OGCC, was Republic, thru the OGCC, shall not only be appropriating additional funds for its annual rental
forced, intimidated and coerced to execute a waiver of its rights and interests to the property, but worse, it was stripped of the opportunity to become the absolute owner of the subject
and the BOT of the GSIS was likewise constrained to approve the offer of petitioner and to property. Add to this the difference between consideration and the market value of the
execute the 2nd Lease-Purchase Agreement. property (approx. 5-8 million).

The 2nd Lease-Purchase Agreement is burdensome and grossly disadvantageous to the RP. On this respect, [respondents’] assertion that the subject Agreement is at the behest of
Notwithstanding that the property was already valued then at or about P10,000,000.00, they [petitioner] and is grossly disadvantageous to the Republic had become self-evident. Some
were sold for only P2,000,000.00, and, worse yet, payable on a fifteen-year installment basis. economic implications: the Republic would need to appropriate additional funds to pay for
Furthermore, the agreement obligated the GSIS to provide an office and parking space its rentals and abandon the chance of becoming the owner of the subject property which it
equivalent to a 3-storey office building at its new building in the Manila Bay Area or some uses for governmental purposes and the fact that the subject property was negotiated by the
other acquired properties to house its offices. The value of this obligation of the GSIS to the government via a losing proposition.
Republic, at the moment is worth at least (P20,000,000.00).
 No. The rule of “in pari delicto” applies to cases where the nullity arises from the illegality of
the consideration or the purpose of the contract. In this case, the nullity of the deed arises
not because of the illegality of the consideration but because the stated consideration had in
ARTICLE 1411
fact not been paid and therefore the said deed is fictitious, simulated, inexistent and
produces no effect whatsoever for lack of consideration.
YU BUN GUAN v ONG
In the present case, it is clear from the factual findings of both lower courts that the Deed of
FACTS
Sale was completely simulated and, hence, void and without effect. No portion of the
Yu Bun and Elvira were married on April 30, 1961 according to Chinese rites. On April 17, P200,000 consideration stated in the Deed was ever paid. And, from the facts of the case, it is
1968 Elvira purchased a parcel of land using her own separate personal funds so the title to clear that neither party had any intention whatsoever to pay that amount.
the property was issued and registered in her name.
Instead, the Deed of Sale was executed merely to facilitate the transfer of the property to
Later on, sometime in 1992, after more than 30 years of marriage and with three children, Yu petitioner pursuant to an agreement between the parties to enable him to construct a
Bun was able to convince Elvira, through repeated importunings, to execute a Deed of Sale of commercial building and to sell the Juno property to their children. Being merely a
her property in his favor. Yu Bun promised Elvira that he would construct a commercial subterfuge, that agreement cannot be taken as the consideration for the sale.
building on the property for the benefit of their children. He suggested that the property
“In pari delicto” does not apply to inexistent contract due to lack of consideration or other
should be in his name alone so that Elvira would not be involved in the loan with the bank.
essential requisites. It applies only to existing contracts with illegal consideration (Yu Bun
The consideration of the transfer of the property in his name consisted of his promise to
Guan vs. Ong G.R. No. 144735 October 18, 2001.)
construct a commercial building for the benefit of their children to whom he will in turn,
execute a Deed of Absolute Sale, and to pay the loan he had obtained from the bank. Because
Thus, the Deed of Sale being simulated and contrary to public policy is without effect . The
of Yu Bun’s glib assurances, Elvira signed a “Deed of Absolute Sale” in his favor with the
Supreme Court in a related case, held that “ the Deed of Sale that was executed , was made
ostensible consideration of P200,000 which Yu Bun did not actually pay. So a new title was
merely to facilitate the transfer of the property to petitioner pursuant to an agreement is void
issued in the name of Yu Bun alone. But to insure that Yu Bun would comply with his promise,
and without effect . Being merely a subterfuge , that agreement cannot be taken as a
Elvira did not deliver the owner’s copy of the TCT to Yu Bun.
consideration for the sale
From then on, marital trouble worsened as Yu Bun would insist on delivering to him the
It is also quite obvious that the Court of Appeals did not err in ordering the cancellation of
owner’s copy of the title which Elvira would ask Yu Bun to comply with his promise. The
TCT No. 181033, because the Deed of Absolute Sale transferring ownership to petitioner was
marital spat was aggravated by Yu Bun’s promiscuity, volcanic temper and other vicious vices
completely simulated, void and without effect. In fact, there was no legal basis for the
until he finally abandoned Elvira and their children.
issuance of the certificate itself.1âwphi1.nêt
Yu Bun then fraudulently tried to obtain a new owner’s title by filing a petition in court
WHEREFORE, the Petition is hereby DENIED and the assailed. Decision AFFIRMED.
alleging that the original title was lost. When Elvira learned about this scheme, she filed an
adverse claim and asked the Court to declare the Deed of Sale she signed null and void and Yu
Bun’s title be cancelled. Yu Bun however contended that Elvira should not be granted the
relief she was praying for because she was equally at fault (in pari delicto) in the execution of
the said Deed of Sale.

ISSUE

w/n Yu Bun was correct?

RULING: