[G.R. No. 128690.
January 21, 1999] From among the three packages I can only tick off 10 titles we can purchase. Please
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF
APPEALS, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE
DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp.
(hereinafter ABS-CBN) seeks to reverse and set aside the decision[1] of 31 October
1996 and the resolution[2] of 10 March 1997 of the Court of Appeals in CA-G.R. CV
No. 44125. The former affirmed with modification the decision[3] of 28 April 1993
of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-
12309. The latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as
follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby
Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Sometime in
December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating
that-
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva
films for TV telecast under such terms as may be agreed upon by the parties hereto,
provided, however, that such right shall be exercised by ABS-CBN from the actual
offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president
Charo Santos-Concio, a list of three (3) film packages (36 title) from which ABS-CBN
may exercise its right of first refusal under the afore-said agreement (Exhs. 1 par. 2,
2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only ten
(10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not accept
said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the
subject of the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva)
is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express
my difficulty in recommending the purchase of the three film packages you are
offering ABS-CBN.
see attached. I hope you will understand my position. Most of the action pictures in
the list do not have big action stars in the cast. They are not for primetime. In line
with this I wish to mention that I have not scheduled for telecast several action
pictures in our very first contract because of the cheap production value of these
movies as well as the lack of big action stars. As a film producer, I am sure you
understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only
schedule them in out non-primetime slots. We have to cover the amount that was
paid for these movies because as you very well know that non-primetime
advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected
because of the ruling of MTRCB to have them aired at 9:00 p.m. due to their very
adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider
including all the other Viva movies produced last year, I have quite an attractive
offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio,
with a list consisting of 52 original movie titles (i.e., not yet aired on television)
including the 14 titles subject of the present case, as well as 104 re-runs (previously
aired on television) from which ABS-CBN may choose another 52 titles, as a total of
156 titles, proposing to sell to ABS-CBN airing rights over this package of 52
originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash
and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio
Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss the
package proposal of VIVA. What transpired in that lunch meeting is the subject of
conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly
agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a
total consideration of P36 million; that he allegedly put this agreement as to the
price and number of films in a napkin and signed it and gave it to Mr. Del Rosario
(Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992).On the other hand. Del Rosario denied
having made any agreement with Lopez regarding the 14 Viva films; denied the
existence of a napkin in which Lopez wrote something; and insisted that what he
and Lopez discussed at the lunch meeting was Vivas film package offer of 104 films
(52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising
[sic]to make a counter proposal which came in the form of a proposal contract
Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president
for Finance discussed the terms and conditions of Vivas offer to sell the 104 films,
after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a
handwritten note from Ms. Concio, (Exh. 5 Viva), which reads: Heres the draft of
the contract. I hope you find everything in order, to which was attached a draft
exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering
53 films, 52 of which came from the list sent by defendant Del Rosario and one film
was added by Ms. Concio, for a consideration of P35 million. Exhibit C provides that
ABS-CBN is granted film rights to 53 films and contains a right of first refusal to 1992
Viva Films. The said counter proposal was however rejected by Vivas Board of
Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell
anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and
such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations
and meetings defendant Del Rosario and Vivas President Teresita Cruz, in
consideration of P60 million, signed a letter of agreement dated April 24, 1992,
granting RBS the exclusive right to air 104 Viva-produced and/or acquired films
(Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present
case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or temporary
restraining order against private respondents Republic Broadcasting
Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the
fourteen VIVA films subject of the controversy, starting with the film Maging Sino
Ka Man, which was scheduled to be shown on private respondent RBS channel 7 at
seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order[7] directing the issuance of a writ of preliminary injunction upon ABS-CBNs
posting of a P35 million bond. ABS-CBN moved for the reduction of the
bond,[8] while private respondents moved for reconsideration of the order and
offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with
counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary
injunction upon the posting by RBS of a P30 million counterbond to answer for
whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it
reduced petitioners injunction bond to P15 million as a condition precedent for the
reinstatement of the writ of preliminary injunction should private respondents be
unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court,
agreed to explore the possibility of an amicable settlement. In the meantime, RBS
prayed for and was granted reasonable time within which to put up a P30 million
counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October
1992 a counterbond, which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3
August and 15 October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court
of Appeals a petition[17] challenging the RTCs Order of 3 August and 15 October
1992 and praying for the issuance of a writ of preliminary injunction to enjoin the
RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining
order[18] to enjoin the airing, broadcasting, and televising of any or all of the films
involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing
the petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the
dismissal in a petition for review filed with this Court on 19 January 1993, which
was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-
92-12309. Thereafter, on 28 April 1993, it rendered a decision[20] in favor of RBS
and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is
rendered in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued
defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in
various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way
of reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the
offer. The alleged agreement between Lopez III and Del Rosario was subject to the
approval of the VIVA Board of Directors, and said agreement was disapproved
during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-
CBNs demand that VIVA signed the 1992 Film Exhibition Agreement.Furthermore,
the right of first refusal under the 1990 Film Exhibition Agreement had previously
been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable
to them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No.
108363, as no reversible error was committed by the Court of Appeals in its
challenged decision and the case had become moot and academic in view of the
dismissal of the main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming
that there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN
the exclusive right to exhibit the subject films. Private respondents VIVA and Del
Rosario also appealed seeking moral and exemplary damages and additional
attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that
the contract between ABS-CBN and VIVA had not been perfected, absent the
approval by the VIVA Board of Directors of whatever Del Rosario, its agent, might
have agreed with Lopez III. The appellate court did not even believe ABS-CBNs
evidence that Lopez III actually wrote down such an agreement on a napkin, as the
same was never produced in court. It likewise rejected ABS-CBNs insistence on its
right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition
Agreement was entered into between Appellant ABS-CBN and appellant VIVA under
Exhibit A in 1990 and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA
films for TV telecast under such terms as may be agreed upon by the parties hereto,
provided, however, that such right shall be exercised by ABS-CBN within a period of
fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still
be subjected to such terms as may be agreed upon by the parties thereto, and that
the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual
offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the
price of the film right to the twenty-four (24) films, nor did it specify the terms
thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated II
that it can only tick off ten (10) films, and the draft contract Exhibit C accepted only
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24)
RESPONDENT RBS.
films.
III
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records,
pp. 86-88; Decision, p. 11, Records, p. 1150), when the first list of VIVA films was IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
sent by Mr. Del Rosario to ABS-CBN.The Vice President of ABS-CBN, Mrs. Charo RESPONDENT RBS.
Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where
ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly IV
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992,
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day
period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS- ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-
CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which four titles under the 1990 Film Exhibition Agreement, as it had chosen only ten
ABS-CBN shall exercise its right of first refusal has already expired.[22] titles from the first list. It insists that we give credence to Lopezs testimony that he
and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and
Accordingly, respondent court sustained the award factual damages consisting in
conditions of the second list (the 1992 Film Exhibition Agreement) and upon
the cost of print advertisements and the premium payments for the counterbond,
agreement thereon, wrote the same on a paper napkin. It also asserts that the
there being adequate proof of the pecuniary loss which RBS has suffered as a result
contract has already been effective, as the elements thereof, namely, consent,
of the filing of the complaint by ABS-CBN. As to the award of moral damages, the
object, and consideration were established. It then concludes that the Court of
Court of Appeals found reasonable basis therefor, holding that RBSs reputation was
Appeals pronouncements were not supported by law and jurisprudence, as per our
debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of
showing of the film Maging Sino Ka Man. Respondent court also held that
Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion
exemplary damages were correctly imposed by way of example or correction for
v. Court of Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
the public good in view of the filing of the complaint despite petitioners knowledge
that the contract with VIVA had not been perfected. It also upheld the award of Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS
attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92- spent for the premium on the counterbond of its own volition in order to negate
12309, RBS was unnecessarily forced to litigate. The appellate court, however, the injunction issued by the trial court after the parties had ventilated their
reduced the awards of moral damages to P 2 million, exemplary damages to P2 respective positions during the hearings for the purpose. The filing of the
million, and attorneys fees to P500,000.00. counterbond was an option available to RBS, but it can hardly be argued that ABS-
CBN compelled RBS to incur such expense. Besides, RBS had another available
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios
option, i.e., move for the dissolution of the injunction; or if it was determined to put
appeal because it was RBS and not VIVA which was actually prejudiced when the
up a counterbond, it could have presented a cash bond. Furthermore under Article
complaint was filed by ABS-CBN.
2203 of the Civil Code, the party suffering loss injury is also required to exercise the
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this diligence of a good father of a family to minimize the damages resulting from the
case, contending that the Court of Appeals gravely erred in act or omission. As regards the cost of print advertisements, RBS had not
convincingly established that this was a loss attributable to the non-showing
I of Maging Sino Ka Man; on the contrary, it was brought out during trial that with or
without the case or injunction, RBS would have spent such an amount to generate
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
interest in the film.
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
ABS-CBN further contends that there was no other clear basis for the awards of
moral and exemplary damages. The controversy involving ABS-CBN and RBS did not
in any way originate from business transaction between them. The claims for such
damages did not arise from any contractual dealings or from specific acts
committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint. An
award of moral and exemplary damages is not warranted where the record is bereft
of any proof that a party acted maliciously or in bad faith in filing an action.[27] In
any case, free resort to courts for redress of wrongs is a matter of public policy. The
law recognizes the right of every one to sue for that which he honestly believes to
be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on
the matter, the case would lose ground.[28]One who, makes use of his own legal
right does no injury.[29] If damage results from filing of the complaint, it is damnum
absque injuria.[30] Besides, moral damages are generally not awarded in favor of a
juridical person, unless it enjoys a good reputation that was debased by the
offending party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no
factual, legal, or equitable justification. In sustaining the trial courts award, the
Court of Appeals acted in clear disregard of the doctrine laid down in Buan v.
Camaganacan[32] that the text of the decision should state the reason why
attorneys fees are being awarded; otherwise, the award should be
disallowed. Besides, no bad faith has been imputed on, much less proved as having
been committed by, ABS-CBN. It has been held that where no sufficient showing of
bad faith would be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorneys fees shall not be
recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-
CBN and VIVA absent meeting of minds between them regarding the object and
consideration of the alleged contract. It affirms that ABS-CBNs claim of a right of
first refusal was correctly rejected by the trial court. RBS insists the premium it had
paid for the counterbond constituted a pecuniary loss upon which it may recover. It
was obliged to put up the counterbond due to the injunction procured by ABS-
CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim
against RBS and, therefore not entitled to the writ of injunction, RBS could recover
from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-
CBN, the cash bond would prove to be more expensive, as the loss would be
equivalent to the cost of money RBS would forego in case the P30 million came
from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the
cancelled showing of the film Maging Sino Ka Man because the print
advertisements were out to announce the showing on a particular day and hour on
Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic
basis. Hence, the print advertisements were good and relevant for the particular
date of showing, and since the film could not be shown on that particular date and
hour because of the injunction, the expenses for the advertisements had gone to
waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case
and secured injunctions purely for the purpose of harassing and prejudicing
RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held
liable for such damages. Citing Tolentino,[34] damages may be awarded in cases of
abuse of rights even if the done is not illicit, and there is abuse of rights where a
plaintiff institutes an action purely for the purpose of harassing or prejudicing the
defendant.
In support of its stand that a juridical entity can recover moral and exemplary
damages, private respondent RBS cited People v. Manero,[35] where it was stated
that such entity may recover moral and exemplary damages if it has a good
reputation that is debased resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in
this case. When RBS was not able to fulfill its commitment to the viewing public to
show the film Maging Sino Ka Man on the scheduled dates and times (and on two
occasions that RBS advertised), it suffered serious embarrassment and social
humiliation. When the showing was cancelled, irate viewers called up RBS offices
and subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo
naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not
something RBS brought upon itself. It was exactly what ABS-CBN had planted to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two
reasons justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS
operations as a broadcasting company is [sic] nationwide. Its clientele, like that of
ABS-CBN, consists of those who own and watch television. It is not an exaggeration
to state, and it is a matter of judicial notice that almost every other person in the
country watches television. The humiliation suffered by RBS is multiplied by the
number of televiewers who had anticipated the showing of the film, Maging Sino Ka
Man on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for
the telecast and to whom RBS had a commitment in consideration of the placement
to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The
humiliation and injury are far greater in degree when caused by an entity whose
ultimate business objective is to lure customers (viewers in this case) away from the
competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the
trial court and the Court of Appeals do not support ABS-CBNs claim that there was a
perfected contract. Such factual findings can no longer be disturbed in this petition
for review under Rule 45, as only questions of law can be raised, not questions of
fact. On the issue of damages and attorneys fees, they adopted the arguments of
RBS.
The key issues for our consideration are (1) whether there was a perfected contract
between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and
attorneys fees. It may be noted that that award of attorneys fees of P212,000 in
favor of VIVA is not assigned as another error.
I changes in the terms of the offer and yet be a binding acceptance as long as it is
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds
between two persons whereby one binds himself to give something or render some
service to another[37] for a consideration. There is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is
the subject of the contract; and (3) cause of the obligation, which is
established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come
to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms
agreed upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the
minds. Once there is concurrence between the offer and the acceptance upon the
subject matter, consideration, and terms of payment a contract is produced. The
offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a counter-offer and is
a rejection of the original offer. Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not sufficient to
generate consent because any modification or variation from the terms of the offer
annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2
April 1992 to discuss the package of films, said package of 104 VIVA films was VIVAs
offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent
through Ms. Concio, counter-proposal in the form a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-proposal could
be nothing less than the counter-offer of Mr. Lopez during his conference with Del
Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs
offer, for it was met by a counter-offer which substantially varied the terms of the
offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals[41] and Villonco Realty Company v. Bormaheco, Inc.,[42] is misplaced. In
these cases, it was held that an acceptance may contain a request for certain
clear that the meaning of the acceptance is positively and unequivocally to accept
the offer, whether such request is granted or not. This ruling was, however,
reversed in the resolution of 29 March 1996,[43] which ruled that the acceptance of
an offer must be unqualified and absolute, i.e., it must be identical in all respects
with that of the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously
been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance
Co.[44] that a vendors change in a phrase of the offer to purchase, which change
does not essentially change the terms of the offer, does not amount to a rejection
of the offer and the tender of a counter-offer.[45] However, when any of the
elements of the contract is modified upon acceptance, such alteration amounts to a
counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence,
they underwent period of bargaining. ABS-CBN then formalized its counter-
proposals or counter-offer in a draft contract. VIVA through its Board of Directors,
rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had
accepted the counter-offer, the acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code,
corporate powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for
the executive committee, must be for specific purposes.[47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency
as to the binding effects of their acts would apply.[48] For such officers to be
deemed fully clothed by the corporation to exercise a power of the Board, the latter
must specially authorize them to do so. that Del Rosario did not have the authority
to accept ABS-CBNs counter-offer was best evidenced by his submission of the draft
contract to VIVAs Board of Directors for the latters approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds. The following findings
of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract was
perfected at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred
to the price and the number of films, which he wrote on a napkin. However, Exhibit
C contains numerous provisions which were not discussed at the Tamarind Grill, if
Lopez testimony was to be believed nor could they have been physically written on
a napkin. There was even doubt as to whether it was a paper napkin or cloth
napkin. In short what were written in Exhibit C were not discussed, and therefore
could not have been agreed upon, by the parties. How then could this court compel
the parties to sign Exhibit C when the provisions thereof were not previously agreed
upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of
the contract was 14 films. The complaint in fact prays for delivery of 14 films. But
Exhibit C mentions 53 films as its subject matter. Which is which? If Exhibit C
reflected the true intent of the parties, then ABS-CBNs claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then Exhibit C did not
reflect what was agreed upon by the parties. This underscores the fact that there
was no meeting of the minds as to the subject matter of the contract, so as to
preclude perfection thereof. For settled is the rule that there can be no contract
where there is no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D)
States:
We were able to reach an agreement. VIVA gave us the exclusive license to show
these fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00
as well as grant Viva commercial slots worth P19,950,000.00. We had already
earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00
plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies
and the other 7 Viva movies because the price was broken down accordingly. The
none [sic] Viva and the seven other Viva movies and the sharing between the cash
portion and the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C
to Mr. Del Rosario with a handwritten note, describing said Exhibit C as a
draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined
meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing
prepared for discussion, the terms and conditions thereof could not have been
previously agreed upon by ABS-CBN and Viva.Exhibit C could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms
and conditions embodied in Exhibit C were prepared by ABS-CBNs lawyers and
there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C,
and there was no evidence whatsoever that Viva agreed to the terms and
conditions thereof, said document cannot be a binding contract. The fact that Viva
refused to sign Exhibit C reveals only two [sic] well that it did not agree on its terms
and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at
the Tamarind Grill was only provisional, in the sense that it was subject to approval
by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein
you claimed that you have the meeting of the minds between you and Mr. Vic del
Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece
of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del
Rosario had no authority to bind Viva to a contract with ABS-CBN until and unless
its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del
Rosario is the Executive Producer of defendant Viva which is a corporation. (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets
and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del
Rosario could not be held liable jointly and severally with Viva and his inclusion as
party defendant has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil.
125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear
admissions that what was supposed to have been agreed upon at the Tamarind Grill
between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should
be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva
board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a
valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The
evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and
insisted that the film package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over
twenty-four films under the 1990 Film Exhibition Agreement and that the meeting
between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBNs right of first refusal had already
been exercised when Ms. Concio wrote to Viva ticking off ten films.Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was
sent, was for an entirely different package. Ms. Concio herself admitted on cross-
examination to having used or exercised the right of first refusal. She stated that
the list was not acceptable and was indeed not accepted by ABS-CBN, (Tsn, June 8,
1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may
have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-
75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its right of
first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-
11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up
actual damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on
actual or compensatory damages.Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss suffered
by him as he has duly proved.[51] The indemnification shall comprehend not only
the value of the loss suffered, but also that of the profits that the obligee failed to
obtain.[52] In contracts and quasi-contracts the damages which may be awarded
are dependent on whether the obligor acted with good faith or otherwise. In case
of good faith, the damages recoverable are those which are the natural and
probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.[53] In crimes and quasi-delicts, the defendants shall
be liable for all damages which are the natural and probable consequences of the
act or omission complained of, whether or not such damages have been foreseen or
could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury, or for injury to the
plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract,
delict, or quasi-delict. It arose from the fact of filing of the complaint despite ABS-
CBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of RBSs
Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM
specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action
against RBS. As a result thereof, RBS suffered actual damages in the amount
of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the
above law on actual damages. RBS could only probably take refuge under Articles
19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of provides that moral damages may be recovered in breaches of contract where the
his duties, act with justice, give everyone his due, and observe honesty and good defendant acted fraudulently or in bad faith. RBSs claim for moral damages could
faith. possibly fall only under item (10) of Article 2219, thereof which reads:

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
another shall indemnify the latter for the same.
Moral damages are in the category of an award designed to compensate the
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is claimant for actual injury suffered and not to impose a penalty on the
contrary to morals, good customs or public policy shall compensate the latter for wrongdoer.[62] The award is not meant to enrich the complainant at the expense
the damage. of the defendant, but to enable the injured party to obtain means, diversion, or
amusements that will serve to obviate the moral suffering he has undergone. It is
It may further be observed that in cases where a writ of preliminary injunction is
aimed at the restoration, within the limits of the possible, of the spiritual status quo
issued, the damages which the defendant may suffer by reason of the writ are
ante, and should be proportionate to the suffering inflicted.[63] Trial courts must
recoverable from the injunctive bond.[57] In this case, ABS-CBN had not yet filed
then guard against the award of exorbitant damages; they should exercise balanced
the required bond; as a matter of fact, it asked for reduction of the bond and even
restrained and measured objectivity to avoid suspicion that it was due to passion,
went to the Court of Appeals to challenge the order on the matter. Clearly then, it
prejudice, or corruption or the part of the trial court.[64]
was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held
responsible for the premium RBS paid for the counterbond. The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has no
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering
Man for lack of sufficient legal basis. The RTC issued a temporary restraining order
and mental anguish, which can be experienced only by one having a nervous
and later, a writ of preliminary injunction on the basis of its determination that
system.[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v.
there existed sufficient ground for the issuance thereof. Notably, the RTC did not
PNB[67] that a corporation may recover moral damages if it has a good reputation
dissolve the injunction on the ground of lack of legal and factual basis, but because
that is debased, resulting in social humiliation is an obiter dictum. On this score
of the plea of RBS that it be allowed to put up a counterbond.
alone the award for damages must be set aside, since RBS is a corporation.
As regards attorneys fees, the law is clear that in the absence of stipulation,
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of
attorneys fees may be recovered as actual or compensatory damages under any of
the Civil Code. These are imposed by way of example or correction for the public
the circumstances provided for in Article 2208 of the Civil Code.[58]
good, in addition to moral, temperate, liquidated, or compensatory
The general rule is that attorneys fees cannot be recovered as part of damages damages.[68] They are recoverable in criminal cases as part of the civil liability
because of the policy that no premium should be placed on the right to when the crime was committed with one or more aggravating circumstances;[69] in
litigate.[59] They are not to be awarded every time a party wins a suit. The power of quasi-delicts, if the defendant acted with gross negligence;[70] and in contracts and
the court t award attorneys fees under Article 2208 demands factual, legal, and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless,
equitable justification.[60] Even when a claimant is compelled to litigate with third oppressive, or malevolent manner.[71]
persons or to incur expenses to protect his rights, still attorneys fees may not be
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract,
awarded where no sufficient showing of bad faith could be reflected in a partys
quasi-contract, delict, or quasi-delict. Hence, the claims for moral and exemplary
persistence in a case other than an erroneous conviction of the righteousness of his
damages can only be based on Articles 19, 20, and 21 of the Civil Code.
cause.[61]
The elements of abuse of right under Article 19 are the following: (1) the existence
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil
of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent
Code. Article 2217 thereof defines what are included in moral damages, while
of prejudicing or injuring another.Article 20 speaks of the general sanction for all
Article 2219 enumerates the cases where they may be recovered. Article 2220
provisions of law which do not especially provide for their own sanction; while
Article 21 deals with acts contra bonus mores, and has the following elements: (1)
there is an act which is legal, (2) but which is contrary to morals, good custom,
public order, or public policy, and (3) and it is done with intent to injure.[72]

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or
bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity.[73]Such must be substantiated by
evidence.[74]

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious
negotiations culminating in its formal submission of a draft contract. Settled is the
rule that the adverse result of an action does not per se make the action wrongful
and subject the actor to damages, for the law could not have meant impose a
penalty on the right to litigate. If damages result from a persons exercise of a right,
it is damnum absque injuria.[75]

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court
of Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed
award of attorneys fees in favor of VIVA Productions, Inc.

No pronouncement as to costs.

SO ORDERED.
[G.R. No. 124290. January 16, 1998]
ALLIED BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, HON. JOSE C.
DE GUZMAN, OSCAR D. TANQUECO, LUCIA D. TANQUECO-MATIAS, RUBEN D.
TANQUECO and NESTOR D. TANQUECO, respondents
DECISION
BELLOSILLO, J .:
There are two (2) main issues in this petition for review: namely, (a) whether a
stipulation in a contract of lease to the effect that the contract "may be renewed
for a like term at the option of the lessee" is void for being potestative or violative
of the principle of mutuality of contracts under Art. 1308 of the Civil Code and,
corollarily, what is the meaning of the clause"may be renewed for a like term at the
option of the lessee;" and, (b) whether a lessee has the legal personality to assail
the validity of a deed of donation executed by the lessor over the leased premises.
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square
meter lot located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches,
Quezon City, covered by TCT No. 136779 in their name. On 30 June 1978 they
leased the property to petitioner Allied Banking Corporation (ALLIED) for a monthly
rental of P1,000.00 for the first three (3) years, adjustable by 25% every three (3)
years thereafter.[1] The lease contract specifically states in its Provision No. 1 that
"the term of this lease shall be fourteen (14) years commencing from April 1, 1978
and may be renewed for a like term at the option of the lessee."
Pursuant to their lease agreement, ALLIED introduced an improvement on the
property consisting of a concrete building with a floor area of 340-square meters
which it used as a branch office. As stipulated, the ownership of the building would
be transferred to the lessors upon the expiration of the original term of the lease.
Sometime in February 1988 the Tanqueco spouses executed a deed of donation
over the subject property in favor of their four (4) children, namely, private
respondents herein Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco
and Nestor D. Tanqueco, who accepted the donation in the same public instrument.
On 13 February 1991, a year before the expiration of the contract of lease, the
Tanquecos notified petitioner ALLIED that they were no longer interested in
renewing the lease.[2] ALLIEDreplied that it was exercising its option to renew their
lease under the same terms with additional proposals.[3] Respondent Ruben D.
Tanqueco, acting in behalf of all the donee-lessors, made a counter-
proposal.[4] ALLIED however rejected the counter-proposal and insisted on
Provision No. 1 of their lease contract.
When the lease contract expired in 1992 private respondents demanded that
ALLIED vacate the premises. But the latter asserted its sole option to renew the
lease and enclosed in its reply letter a cashiers check in the amount of P68,400.00
representing the advance rental payments for six (6) months taking into account
the escalation clause. Private respondents however returned the check to ALLIED,
prompting the latter to consign the amount in court.
An action for ejectment was commenced before the Metropolitan Trial Court of
Quezon City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease
contract void for being violative of Art. 1308 of the Civil Code thus -
x x x but such provision [in the lease contract], to the mind of the Court, does not
add luster to defendants cause nor constitutes as an unbridled or unlimited license
or sanctuary of the defendant to perpetuate its occupancy on the subject
property. The basic intention of the law in any contract is mutuality and equality. In
other words, the validity of a contract cannot be left at (sic) the will of one of the
contracting parties. Otherwise, it infringes (upon) Article 1308 of the New Civil
Code, which provides: The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them x x x x Using the principle
laid down in the case of Garcia v. Legarda as cornerstone, it is evident that the
renewal of the lease in this case cannot be left at the sole option or will of the
defendant notwithstanding provision no. 1 of their expired contract. For that would
amount to a situation where the continuance andeffectivity of a
contract will depend only upon the sole will or power of the lessee, which is
repugnant to the very spirit envisioned under Article 1308 of the New Civil Code x x
x x the theory adopted by this Court in the case at bar finds ample affirmation from
the principle echoed by the Supreme Court in the case of Lao Lim v. CA, 191 SCRA
150, 154, 155.
On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed
decision was affirmed.[5]
On 20 February 1993, while the case was pending in the Court of Appeals, ALLIED
vacated the leased premises by reason of the controversy.[6]
ALLIED insists before us that Provision No. 1 of the lease contract was mutually
agreed upon hence valid and binding on both parties, and the exercise by petitioner
of its option to renew the contract was part of their agreement and in pursuance
thereof.
We agree with petitioner. Article 1308 of the Civil Code expresses what is known in
law as the principle of mutuality of contracts. It provides that "the contract must
bind both the contracting parties; its validity or compliance cannot be left to the will
of one of them." This binding effect of a contract on both parties is based on
the principle that the obligations arising from contracts have the force of law
between the contracting parties, and there must be mutuality between them based
essentially on their equality under which it is repugnant to have one party bound
by the contract while leaving the other free therefrom. The ultimate purpose is to
render void a contract containing a condition which makes its fulfillment dependent
solely upon the uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the lease is
frequent and subject to statutory restrictions, valid and binding on the parties. This
option, which is provided in the same lease agreement, is fundamentally part of the
consideration in the contract and is no different from any other provision of the
lease carrying an undertaking on the part of the lessor to act conditioned on the
performance by the lessee. It is a purely executory contract and at most confers a
right to obtain a renewal if there is compliance with the conditions on which the
right is made to depend. The right of renewal constitutes a part of the lessees
interest in the land and forms a substantial and integral part of the agreement.
The fact that such option is binding only on the lessor and can be exercised only by
the lessee does not render it void for lack of mutuality. After all, the lessor is free to
give or not to give the option to the lessee. And while the lessee has a right to elect
whether to continue with the lease or not, once he exercises his option to continue
and the lessor accepts, both parties are thereafter bound by the new lease
agreement. Their rights and obligations become mutually fixed, and the lessee is
entitled to retain possession of the property for the duration of the new lease, and
the lessor may hold him liable for the rent therefor. The lessee cannot thereafter
escape liability even if he should subsequently decide to abandon the premises.
Mutuality obtains in such a contract and equality exists between the lessor and the
lessee since they remain with the same faculties in respect to fulfillment.[7]
The case of Lao Lim v. Court of Appeals[8] relied upon by the trial court is not
applicable here. In that case, the stipulation in the disputed compromise agreement
was to the effect that the lessee would be allowed to stay in the premises "as long
as he needs it and can pay the rents." In the present case, the questioned provision
states that the lease "may be renewed for a like term at the option of the
lessee." The lessor is bound by the option he has conceded to the lessee. The lessee
likewise becomes bound only when he exercises his option and the lessor cannot
thereafter be excused from performing his part of the agreement.
Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda,
Inc.,[9] is misplaced. In that case, what was involved was a contract to sell involving
residential lots, which gave the vendor the right to declare the contract
cancelled and of no effect upon the failure of the vendee to fulfill any of
the conditions therein set forth. In the instant case, we are dealing with a contract
of lease which gives the lessee the right to renew the same.
With respect to the meaning of the clause "may be renewed for a like term at the
option of the lessee," we sustain petitioner's contention that its exercise of the
option resulted in the automatic extension of the contract of lease under the same
terms and conditions. The subject contract simply provides that "the term of this
lease shall be fourteen (14) years and may be renewed for a like term at the option
of the lessee." As we see it, the only term on which there has been a clear
agreement is the period of the new contract, i.e., fourteen (14) years, which is
evident from the clause "may be renewed for a like term at the option of the
lessee," the phrase "for a like term" referring to the period. It is silent as to what
the specific terms and conditions of the renewed lease shall be. Shall it be the same
terms and conditions as in the original contract, or shall it be under the terms and
conditions as may be mutually agreed upon by the parties after the expiration
of the existing lease?
In Ledesma v. Javellana[10] this Court was confronted with a similar problem. In
that case the lessee was given the sole option to renew the lease, but the contract
failed to specify the terms and conditions that would govern the new contract.
When the lease expired, the lessee demanded an extension under the same terms
and conditions. The lessor expressed conformity to the renewal of the contract but
refused to accede to the claim of the lessee that the renewal should be under the
same terms and conditions as the original contract. In sustaining the lessee, this
Court made the following pronouncement:
x x x in the case of Hicks v. Manila Hotel Company, a similar issue was resolved
by this Court. It was held that 'such a clause relates to the very contract in which it
is placed, and does not permit the defendant upon the renewal of the contract in
which the clause is found, to insist upon different terms than those embraced in the
contract to be renewed;' and that 'a stipulation to renew always relates to the
contract in which it is found and the rights granted thereunder, unless it expressly
provides for variations in the terms of the contract to be renewed.'
The same principle is upheld in American Law regarding the renewal of lease
contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following
citations: 'The rule is well-established that a general covenant to renew or extend
a lease which makes no provision as to the terms of a renewal or extension implies
a renewal or extension upon the same terms as provided in the original lease.'
In the lease contract under consideration, there is no provision to indicate that the
renewal will be subject to new terms and conditions that the parties may yet agree
upon. It is to renewal provisions of lease contracts of the kind presently considered
that the principles stated above squarely apply. We do not agree with the
contention of the appellants that if it was intended by the parties to renew the
contract under the same terms and conditions stipulated in the contract of lease,
such should have expressly so stated in the contract itself. The same argument
could easily be interposed by the appellee who could likewise contend that if
the intention was to renew the contract of lease under such new terms and
conditions that the parties may agree upon, the contract should have so
specified. Between the two assertions, there is more logic in the latter.
The settled rule is that in case of uncertainty as to the meaning of a provision
granting extension to a contract of lease, the tenant is the one favored and not the
landlord. 'As a general rule, in construing provisions relating to renewals or
extensions, where there is any uncertainty, the tenant is favored, and not the
landlord, because the latter, having the power of stipulating in his own favor, has
neglected to do so; and also upon the principle that every man's grant is to be taken
most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. 48; see also 51 C.J.S.
599).'
Besides, if we were to adopt the contrary theory that the terms and conditions to
be embodied in the renewed contract were still subject to mutual agreement by
and between the parties, then the option - which is an integral part of the
consideration for the contract - would be rendered worthless. For then, the lessor
could easily defeat the lessee's right of renewal by simply imposing unreasonable
and onerous conditions to prevent the parties from reaching an agreement, as in
the case at bar. As in a statute no word, clause, sentence, provision or part of a
contract shall be considered surplusage or superfluous, meaningless, void,
insignificant or nugatory, if that can be reasonably avoided. To this end, a
construction which will render every word operative is to be preferred over that
which would make some words idle and nugatory.[11]
Finally, ALLIED cannot assail the validity of the deed of donation, not being a party
thereto. A person who is not principally or subsidiarily bound has no legal capacity
to challenge the validity of the contract.[12] He must first have an interest in
it. "Interest" within the meaning of the term means material interest, an interest to
be affected by the deed, as distinguished from a mere incidental interest. Hence, a
person who is not a party to a contract and for whose benefit it was not expressly
made cannot maintain an action on it, even if the contract, if performed by the
parties thereto would incidentally affect him,[13] except when he is prejudiced in
his rights with respect to one of the contracting parties and can show the detriment
which couldpositively result to him from the contract in which he had no
intervention.[14] We find none in the instant case.
WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE.
Considering that petitioner ALLIED BANKING CORPORATION already vacated the
leased premises as of 20 February 1993, the renewed lease contract is deemed
terminated as of that date. However, petitioner is required to pay rentals to
respondent lessors at the rate provided in their existing contract, subject to
computation in view of the consignment in court of P68,400.00 by petitioner, and
of such other amounts it may have deposited or advanced in connection with the
lease.
SO ORDERED.

Fortunately for respondent lessors, ALLIED vacated the premises on 20 February

1993 indicating its abandonment of whatever rights it had under the renewal
clause. Consequently, what remains to be done is for ALLIED to pay rentals for the
continued use of the premises until it vacated the same, computed from
the expiration of the original term of the contract on 31 March 1992 to the time it
actually left the premises on 20 February 1993, deducting therefrom the amount
of P68,400.00 consigned in court by ALLIED and any other amount which it may
have deposited or advanced in conection with the lease. Since the old lease
contract was deemed renewed under the same terms and conditions upon the
exercise by ALLIED of its option, the basis of the computation of rentals should be
the rental rate provided for in the existing contract.
G.R. No. L-40424 June 30, 1980
R. MARINO CORPUS, petitioner, vs. COURT OF APPEALS and JUAN T.
DAVID, respondents MAKASIAR, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
promulgated on February 14, 1975 in CA-G.R. No. 40583-R, affirming the decision of
the court of Instance of Manila, Branch V. dated september 4, 1967, in Civil Case no.
61802 entitled "Juan T. David,plaintiff, versus R. Mariano Corpus, defendant', for
the recovery of attorneys fees for professional services rendered by the plaintiff,
private respondent herein, to defendant, petitioner herein.
A defendant's having lost his case before Judge Lantin, and knowing that the plaintiff
Having been close friends, aside from being membres Civil Liberties Union,
petitioner Corpus intimately calls respondent David by his nickname "Juaning" and
the latter addresses the former simply as "Marino".
The factual setting of this case is stated in the decision of the lower court, thus:
It appears that in March, 1958, the defendant was charged administratively by
several employee of the Central Bank Export Department of which the defendant is
the director. The defendant was represented by Atty. Rosauro Alvarez. Pending the
investigation and effective March 18, 1958, he defendant was suspended from
office. After the investigating committee found the administrative charges to be
without merit, and subsequently recommended the immediate reinstatement of
the defendant, the then Governor of Central Bank, Miguel Cuaderno, Sr.,
recommended that the defendant be considered resigned as on the ground that he
had lost confidence in him. The Monetary Board, by a resolution of July 20, 1959,
declared the defendant as resigned as of the date of suspension.
On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of First
Instance of Manila a petition for certiorari, mandamus and quo warranto with
preliminary mandatory injuction and damages against Miguel Cuaderno, Sr., the
Central Bank and Mario Marcos who was appointed to the position of the
defendant, said case having been docketed as Civil Case No. 41226 and assigned to
Branch VII presided over by Judge Gregorio T. Lantin. On September 7, 1959, the
respondent filed a motion to dismiss the petition, alleging among other grounds,
the failure of the defendant to exhaust, available administrative remedies (Exh. X).
On September 25, 1959, the defendant, thru Atty. Alvarez, filed his opposition to
the said motion. On March 17, 1960, during the course of the presentation of the
evidence for the petition for a writ of preliminary mandatory injunction, Atty.
Alvarez manifested that the defendant was abandoning his prayer for a writ of
preliminary mandatory injunction and asked for a ruling on the motion to dismiss.
On June 14, 1960, Judge Lantin dismissed Civil Case No. 41226 for failure to exhaust
she administrative remedies available to the herein defendant.
On June 24, 1960, Atty. Alverez received a copy of the order of dismissal It was at
this state that the plaintiff entered into the case under circumstances about which
the parties herein have given divergent versions.
According to the plaintiff, six or seven days prior to the expiration of the period for
appeal from the order of dismissal, he chanced to meet the late Rafael Corpus,
father of the defendant, at the Taza de Oro coffee shop. After they talked about the
and the defendant were both members of the Civil Liberties Union, Rafael Corpus
requested the plaintiff to go over the case and further said that he would send his
son, the herein defendant, to the plaintiff to find out what could be done about the
case. The defendant called up the plaintiff the following morning for an
appointment, and the plaintiff agreed to am him in the latter's office. At said
conference, the defendant requested the plaintiff to handle the case because Atty.
Alvarez had already been disenchanted and wanted to give up the case. Although at
first reluctant to handle the case, the plaintiff finally agreed on condition that he
and Atty. Alverez would collaborate in the case.
The defendant's version of how the plaintiff came into the case is as follows:
After the order of dismissal issued by Judge Lantin was published in the
newspapers, the plaintiff sought a conference with the defendant at Taza de Oro,
but the defendant told him that he would rather meet the plaintiff at the Swiss Inn.
Even before the case was dismissed the plaintiff had shown interest in the same by
being present during the hearings of said case in the sala of Judge Lantin When the
plaintiff and the defendant met at the Swiss Inn, the plaintiff handed the defendant
a memorandum prepared by him on how he can secure the reversal of the order of
dismissal by means of a formula stated in said memorandum. During the said
occasion the plaintiff scribbled some notes on a paper napkin (Exhibit 19). On June
28, 1960, the defendant wrote the plaintiff, sending with it a copy of the order of
Judge Lantin dated June 14, 1960 (Exhibit S Inasmuch as said letter, Exhibit S
already mentions the 'memorandum' of the plaintiff, the defendant contends that it
was not six or seven days prior to the expiration of the period of appeal (which
should be on or about July 2 or 3, 1960) but on a date even earlier than June 28,
1960 that the plaintiff and the defendant met together to discuss the latter's case.
Laying aside for the moment the true circumstances under which the plaintiff
started rendering professional services to the defendant, the undisputed evidence
shows that on July 7, 1960, the plaintiff filed a motion for reconsideration of the
order of dismissal under the joint signatures of the plaintiff and Atty. Alverez
(Exhibit B). The plaintiff argued the said motion during the hearing thereof On
August 8, 1960, he file a 13-page 'Memorandum of Authorities in support of said
motion for reconsideration (Exhibit C). A 3-page supplemental memorandum of
authorities was filed by the plaintiff on September 6, 1960 (Exhibit D)
On November 15, 1960, Judge Lantin denied the motion for reconsideration. On
November 19, 1960, the plaintiff perfected the appeal from the order of dismissal
dated June 14, 1960. For purposes of said appeal the plaintiff prepared a 232-page
brief and submitted the same before the Supreme Court in Baguio City on April 20,
1961. The plaintiff was the one who orally argued the case before the Supreme
Court. In connection with the trip to Baguio for the said oral argument, the plaintiff
used his car hich broke down and necessitated extensive repairs paid for by the
plaintiff himself.
On March 30, 1962, the Supreme Court promulgated its decision reversing the
order of dismissal and remanding the case for further proceedings. On April 18,
1962, after the promulgation of the decision of the Supreme Court reversing the
dismissal of the case the defendant wrote the plaintiff the following letter, Exhibit
'Q'. .
xxxxxxxxx
Dear Juaning
Will you please accept the attached check in the amount of TWO THOUSAND
P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by
the Court? I wish I could give more but as y•u know we were banking on a SC
decision reinstating me and reimburse my backstage I had been wanting to offer
some token of my appreciation of your legal fight for and in my behalf, and it was
only last week that I received something on account of a pending claim.
Looking forward to a continuation of the case in the lower court, I remain
Sincerely yours, Illegible
xxxxxxxxx
In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining
said act as follows:
April 25, 1962
My dear Marino:
Yesterday, I received your letter of April 18th with its enclosure. I wished thank you
for your kind thoughts, however, please don't take offense if I have to return the
check. I will explain.
When I decided to render professional services in your case, I was motivated by the
value to me of the very intimate relations which you and I have enjoyed during the
past many years. It was nor primarily, for a professional fee.
Although we were not fortunate to have obtained a decision in your case which
should have put an end to it. I feel that we have reason to be jubilant over the
outcome, because, the final favorable outcome of the case seems
certain irrespective of the length of time required to terminate the same.
Your appreciation of the efforts I have invested in your case is enough
compensation therefor, however, when you shall have obtained a decision which
would have finally resolved the case in your favor, remembering me then will make
me happy. In the meantime, you will make me happier by just keeping the check.
Sincerely yours,
JUANING
xxxxxxxxx
When the case was remanded for further proceedings before Judge Lantin, the
evidence for the defendant was presented by Atty. 'Alvarez with the plaintiff
cooperating in the same-'On June 24, 1963, Judge Lantin rendered his decision in
favor of the defendant declaring illegal the resolution of the Monetary Board of July
20, 1959, and ordering the defendant's reinstatement and the payment of his back
salaries and allowances - The respondents in said Civil Case No. 41226 filed a
motion for reconsideration which was opposed by the herein plaintiff. The said
decision was appealed by the respondents, as well as by the herein defendant with
respect to the award of P5, 000. 00 attorney's feed The plaintiff prepared two briefs
for submission to the Court of Appeals one as appellee (Exhibit H) and the other as
appellant (Exhibit H-1). The Court of Appeal however, certified the case to the
Supreme Court in 1964.
On March 31, 1965, the Supreme Court rendered a decision affirming the judgment
of the Court of first Instance of Manila.
On April 19, 1965 the plaintiffs law office made a formal de command upon the
defendant for collection of 50% of the amount recovered by the defendant as back
salaries and other emoluments from the Central Bank (Exhibit N). This letter was
written after the defendant failed to appear at an appointment with the plaintiff so
that they could go together to the Central Bank to claim the possession of the office
to which the defendant was reinstated and after a confrontation in the office of the
plaintiff wherein the plaintiff was remanding 50% of the back salaries and other
emoluments amounting to P203,000.00 recoverable by the defendant. The
defendant demurred to this demand inasmuch as he had plenty of outstanding
obligations and that his tax liability for said back salaries was around P90,000.00,
and that he expected to net only around P10,000.00 after deducting all expenses
and taxes.
On the same date, April 19,1965 the plaintiff wrote the Governor for of Central
Bank requesting that the amount representing the sack salaries of the defendant be
made out in two one in favor of the defendant and the other representing the
professional fees equivalent to 50% of the said back salaries being claimed by the
plaintiff (Exhibit 8). F to obtain the relief from the Governor of Central Bank, the
plaintiff instituted this action before this Court on July 20, 1965 (Emphasis
supplied).
As therein defendant, herein petitioner Marino Corpus filed in August 5, 1965 an
answer with counter-claim. On August 30, 1965, private respondent Atty. Juan T.
David, plaintiff therein, filed a reply with answer to the counterclaim of petitioner.
After due trial, the lower court rendered judgment on September 4, 1967, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff
the sum of P30,000.00 in the concept of professional fees, and to pay the costs (pp.
112-113, CA Record on Appeal p. 54, rec.)
After receipt on September 7, 1967 of a copy of the aforequoted judgment,
petitioner Marino Corpus, defendant therein, filed on October 7, 1967 a notice of
appeal from said judgment to the Court of Appeals. In his appeal, he alleged that
the lower court erred:
1. In not holding that the plaintiff's professional services were offered and rendered
gratuitously;
2. Assuming that plaintiff is entitled to compensation — in holding that he was
entitled to attorney's fees in the amount of P30,000.00 when at most he would be
entitled to only P2,500.00;
3. In not dismissing plaintiff's complaint; and
4. In not awarding damages and attorney's fees to the defendant (p. 2, CA Decision,
p. 26, rec.)
Likewise, private respondent Atty. Juan T. David, plaintiff therein, appealed to the
Court of Appeals on October 9, 1967 assigning one error, to wit:
The lower court erred in ordering the defendant to pay the plaintiff only the sum of
P30,000.00 in the concept of attorney's fees (p. 1, CA Decision, p. 25, rec.).
On February 14, 1975, respondent Court of Appeals promulgated its decision
affirming in toto the decision of the lower court, with costs against petitioner
Marino Corpus (Annex A, Petition for Certiorari, p. 25, rec.)
Hence, the instant petition for review on certiorari, petitioner — contending that
the respondent Court of Appeals erred in finding that petitioner accepted private
respondent's services "with the understanding of both that he (private respondent)
was to be compensated" in money; and that the fee of private respondent was
contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, rec.).
On October 1, 1975, the case was deemed submitted for decision (p. 177, rec.),
after the parties filed their respective memoranda.
B
On January 31, 1978, private respondent Atty. Juan T. David filed a petition to
remand the case to the court a quo for execution of the latter's decision in Civil
Case No. 61802, dated September 4, 1967, alleging that said decision is already
deemed affirmed pursuant to Section 11(2), Article X of the New Constitution by
reason of the failure of this Tribunal to decide the case within 18 months. Then on
July 7, 1978, another petition to remand the case to the lower court to execution
was filed by herein private respondent.
Subsequently, private respondent Atty. Juan T. David filed with The court a quo a
motion dated September 13, 1978 for the issuance of a writ of execution of the
lower court's decision in the aforesaid civil case, also invoking Section 11 (2), Article
X of the 1973 Constitution. In an order dated September 19, 1978, the lower court,
through Judge Jose H. Tecson, directed the issuance of a writ of execution. The writ
of execution was issued on October 2, 1978 and a notice of garnishment was also
issued n October 13, 1978 to garnish the bank deposits of herein petitioner Marino
Corpus in the Commercial Bank and Trust Company, Makati Branch.
It appears that on October 13, 1978, herein petitioner filed a motion for
reconsideration of the September 19, 1978 order. Private respondent Atty. Juan T.
David filed on October 19, 1978 an opposition to said motion and herein petitioner
filed a reply on October 30, 1978. The lower court denied said motion for
reconsideration in its over dated November 7, 1978.
It appears also that in a letter dated October 18, 1978, herein petitioner Marino
Corpus requested this Court to inquire into what appears to be an irregularity in the
issuance of the aforesaid garnishment notice to the Commercial Bank and Trust
Company, by virtue of which his bank deposits were garnished and he was
prevented from making withdrawals from his bank account.
In OUR resolution of November 3, 1978, WE required private respondent Atty. Juan
T. David and the Commercial Bank and Trust Company to comment on petitioner's
letter, and for the bank to explain why it did not honor petitioner's withdrawals
from his bank deposits when no garnishment order has been issued by the Supreme
Court. This Court further inquired from the lower court whether it has issued any
garnishment order during the pendency of the present case.
On November 27, 1978, the Commercial Bank and Trust Company filed its comment
which was noted in the Court's resolution of December 4, 1978. In said resolution,
the Court also required Judge Jose H. Tecson to comply with the resolution of
November 3, 1978, inquiring as to whether he had issued any garnishment order,
and to explain why a writ of execution was issued despite the pendency of the
present case before the Supreme Court.
Further, WE required private respondent Atty. Juan T. David Lo explain his failure to
file his comment, and to file the same as directed by the resolution of the Court
dated November 3, 1978. Private respondent's compliance came on December 13,
1978, requesting to be excused from the filing of his comment because herein
petitioner's letter was unverified. Judge Tecson's compliance was filed on
December 15, 1978, to which herein petitioner replied on January 11, 1979.
In OUR resolution dated January 3, 1979, WE set aside the order of Judge Jose H.
Tecson dated September 19, 1978, the writ of execution as well as the notice of
garnishment, and required private respondent Atty. Juan T. David to show cause
why he should not be cited for contempt for his failure to file his comment as
directed by the resolution of the Court dated December 4, 1978, and for filing a
motion for execution knowing that the case is pending appeal and review before
this Court Likewise, the Court required Judge Jose H. Tecson to show cause why he
should not be cited for contempt for issuing an order directing the issuance of a
writ of execution and for issuing such writ despite the pendency of the present case
in the Supreme Court.
On January 12, 1979, Judge Jose H. Tecson filed his compliance explanation as
directed by the aforesaid resolution of January 3, 1979, while private respondent
Atty. Juan T. David filed on January 30, 19 79 his compliance and motion for
reconsideration after the Court has granted him an extension of time to file his
compliance.
Private respondent Atty. Juan T. David filed on February 28, 1979, a petition praying
that the merits of his compliance be resolved by the Court en banc. Subsequently,
on March 26, 1979, another petition was filed by herein private respondent asking
the Chief
Justice and the members of the First Division to inhibit themselves from
participating in the determination of the merits of his compliance and for its merits
to be resolved by the Court en banc.
C
The main thrust of this petition for review is whether or not private respondent
Atty. Juan T. David is entitled to attorney's fees.
Petitioner Marino Corpus contends that respondent David is not entitled to
attorney's fees because there was no contract to that effect. On the other hand,
respondent David contends that the absence of a formal contract for the payment
of the attorney's fees will not negate the payment thereof because the contract
may be express or implied, and there was an implied understanding between the
petitioner and private respondent that the former will pay the latter attorney's fees
when a final decision shall have been rendered in favor of the petitioner reinstating
him to -his former position in the Central Bank and paying his back salaries.
I
WE find respondent David's position meritorious. While there was express
agreement between petitioner Corpus and respondent David as regards attorney's
fees, the facts of the case support the position of respondent David that there was
at least an implied agreement for the payment of attorney's fees.
Petitioner's act of giving the check for P2,000.00 through his aforestated April 18,
1962 letter to respondent David indicates petitioner's commitment to pay the
former attorney's fees, which is stressed by expressing that "I wish I could give
more but as you know we were banking on a SC decision reinstating me and
reimbursing my back salaries This last sentiment constitutes a promise to pay more
upon his reinstatement and payment of his back salaries. Petitioner ended his letter
that he was "looking forward to a continuation of the case in the lower court, ... to
which the certiorari-mandamus-quo warranto case was remanded by the Supreme
Court for further proceedings.
Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of
petitioner Corpus to pay attorney's fees upon his reinstatement and payment of
back salaries. Said reply states that respondent David decided to be his counsel in
the case because of the value to him of their intimate relationship over the years
and "not, primarily, for a professional fee." It is patent then, that respondent David
agreed to render professional services to petitioner Corpus secondarily for a
professional fee. This is stressed by the last paragraph of said reply which states
that "however, when you shall have obtained a decision which would have finally
resolved the case in your favor, remembering me then will make me happy. In the
meantime, you will make me happier by just keeping the check." Thereafter,
respondent David continued to render legal services to petitioner Corpus, in
collaboration with Atty. Alverez until he and Atty. Alvarez secured the decision
directing petitioner's reinstatement with back salaries, which legal services were
undisputedly accepted by, and benefited petitioner.
Moreover, there is no reason to doubt respondent David's assertion that Don Rafael
Corpus, the late father of petitioner Corpus, requested respondent to help his son,
whose suit for reinstatement was dismissed by the lower court; that pursuant to
such request, respondent conferred in his office with petitioner, who requested
respondent to handle the case as his lawyer, Atty. Alvarez, was already
disenchanted and wanted to give up the case; and that respondent agreed on the
case. It would have been unethical for respondent to even offer his services when
petitioner had a competent counsel in the person of Atty. Alvarez, who has been
teaching political, constitutional and administrative law for over twenty years.
Likewise, it appears that after the Supreme Court affirmed on March 31, 1965 the
order of the lower court reinstating petitioner Corpus with back salaries and
awarding attorney's fees of P5,000.00, respondent David made a written demand
on April 19, 1965 upon petitioner Corpus for the payment of his attorney's fees in
an amount equivalent to 50% of what was paid as back salaries (Exh. N p. 75, Folder
of Exhibits, Civil Case No. 61802). Petitioner Corpus, in his reply dated May 7, 1965
to the aforesaid written demand, while disagreeing as to the amount of attorney's
fees demanded, did not categorically deny the right of respondent David to
attorney's fees but on the contrary gave the latter the amount of P2,500.00, which
is one-half (½) of the court-awarded attorney's fees of P5,000.00, thus impliedly
admitting the right of respondent David to attorney's fees (Exh. K, p. 57, Folder of
Exhibits, Civil Case No. 61802).
It is further shown by the records that in the motion filed on March 5, 1975 by
petitioner Corpus before the Court of Appeals for the reconsideration of its decision
the order of the lower court granting P30,000.00 attorney's fee's to respondent
David, he admitted that he was the first to acknowledge that respondent David was
entitled to tion for legal services rendered when he sent the chock for P2,000.00 in
his letter of April 18, 1962, and he is still to compensate the respondent but only to
the extent of P10,000.00 (p. 44, rec.). This admission serves only to further
emphasize the fact that petitioner Corpus was aware all the time that he was liable
to pay attorney's fees to respondent David which is therefore inconsistent with his
position that the services of respondent David were gratuitous, which did not
entitle said respondent to compensation.
It may be advanced that respondent David may be faulted for not reducing the
agreement for attorney's fees with petitioner Corpus in writing. However, this
should be viewed from their special relationship. It appears that both have been
friends for several years and were co-members of the Civil Liberties Union. In
addition, respondent David and petitioner's father, the late Rafael Corpus, were
also close friends. Thus, the absence of an express contract for attorney's fees
between respondent David and petitioner Corpus is no argument against the
payment of attorney's fees, considering their close relationship which signifies
mutual trust and confidence between them.
II
Moreover, the payment of attorney's fees to respondent David may also be justified
by virtue of the innominate contract of facio ut des (I do and you give which is
based on the principle that "no one shall unjustly enrich himself at the expense of
another." innominate contracts have been elevated to a codal provision in the New
Civil Code by providing under Article 1307 that such contracts shall be regulated by
the stipulations of the parties, by the general provisions or principles of obligations
and contracts, by the rules governing the most analogous nominate contracts, and
by the customs of the people. The rationale of this article was stated in the 1903
case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of
plaintiff Perez for payment of services rendered against defendant Pomar despite
the absence of an express contract to that effect, thus:
It does not appear that any written contract was entered into between the parties
for the employment of the plaintiff as interpreter, or that any other innominate
contract was entered into but
whethertheplaintiffsservicesweresolicitedorwhethertheywereoffered to the
defendant for his assistance, inasmuch as these services were accepted and made
use of by the latter, we must consider that there was a tacit and mutual consent as
to the rendition of the services. This gives rise to the obligation upon the person
benefited by the services to make compensation therefor, since the bilateral
obligation to render service as interpreter, on the one hand, and on the other to
pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the
Civil Code).
xxxxxxxxx
... Whether the service was solicited or offered, the fact remains that Perez
rendered to Pomar services as interpreter. As it does not appear that he did this
gratuitously, the duty is imposed upon the defendant, he having accepted the
benefit of the service, to pay a just compensation therefor, by virtue of the
innominate contract of facio ut des implicitly established.
xxxxxxxxx
... because it is a well-known principle of law that no one should permitted to enrich
himself to the damage of another" (emphasis supplied; see also Tolentino, Civil
Code of the Philippines, p. 388, Vol. IV 119621, citing Estate of Reguera vs. Tandra
81 Phil. 404 [1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil.
682 [1903]).
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance &
Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:
Where one has rendered services to another, and these services are accepted by
the latter, in the absence of proof that the service was rendered gratuitously, it is
but just that he should pay a reasonable remuneration therefor because 'it is a well-
known principle of law, that no one should be permitted to enrich himself to the
damage of another (emphasis supplied).
Likewise, under American law, the same rule obtains (7 CJS 1079; FL Still & Co. v.
Powell, 114 So 375).
III
There was no contract for contingent fee between Corpus and respondent David.
Contingent fees depend on an express contract therefor. Thus, "an attorney is not
entitled to a percentage of the amount recovered by his client in the absence of an
express contract to that effect" (7 C.J.S. 1063 citing Thurston v. Travelers Ins. Co.,
258 N.W. 66, 128 Neb. 141).
Where services were rendered without any agreement whatever as to the amount
or terms of compensation, the attorney is not acting under a contract for a
contingent fee, and a letter by the attorney to the client stating that a certain sum
would be a reasonable amount to charge for his services and adding that a rate of
not less than five percent nor more than ten would be reasonable and customary
does not convert the original agreement into a contract for a contingent fee (7 C.J.S.
1063 citing Fleming v. Phinizy 134 S.E. 814).
While there was no express contract between the parties for the payment of
attorney's fees, the fact remains that respondent David rendered legal services to
petitioner Corpus and therefore as aforestated, is entitled to compensation under
the innominate contract of facio lit des And such being the case, respondent David
is entitled to a reasonable compensation.
IV
In determining a reasonable fee to be paid to respondent David as compensation
for his services, on a quantum meruit basis, it is proper to consider all the facts and
circumstances obtaining in this case particularly the following:
The extent of the services rendered by respondent David should be considered
together with the extent of the services of Petitioner's other counsel, Atty. Rosauro
Alvarez, It is undisputed that Atty. Rosauro Alvarez had rendered legal services as
principal counsel for more shall six (6) years while respondent David has rendered
legal services as collaborating counsel for almost four (4) years. It appears that Atty.
Alvarez started to render legal services after the administrative case was filed on
March 7, 1958 against petitioner Corpus. He represented petitioner Corpus in the
hearing of said case which was conducted from May 5, 1958 to October 8, 1958,
involving 56 sessions, and this resulted in the complete exoneration by the
Investigating Committee of all the charges against the petitioner. It appears further
that after the Monetary Board, in its resolution of July 20, 1959, declared petitioner
Corpus as being considered resigned from the service, Atty. Alvarez instituted on
August 18, 1958 Civil Case No. 41126 in the Court of First Instance of Manila for the
setting aside of the aforestated resolution and for the reinstatement of petitioner
Corpus. Atty. Alvarez actively participated in the proceedings.
On the other hand, respondent David entered his appearance as counsel for
petitioner Corpus sometime after the dismissal on June 14, 1960 of the aforesaid
civil case. From the time he entered his appearance, both he and Atty. Alvarez
rendered legal services to petitioner Corpus in connection with the appeals of the
aforementioned civil case to the Court of Appeals and to the Supreme Court. The
records disclose that in connection with the appeal from the June 14, 1960 order of
dismissal, respondent David prepared and signed pleadings although the same were
made for and on behalf of Atty. Alvarez and himself And it is not far-fetched to
conclude that all appearances were made by both counsels considering that Atty.
Alverez was the principal counsel and respondent David was the collaborating
counsel. Thus, when the case was called for oral argument on April 20, 1961 before
the Supreme Court, respondent David and Atty. Alverez appeared for petitioner
Corpus although it was David who orally argued the case.
When the Supreme Court, in its decision of March 30, 1962, remanded the case to
the lower court for further it was Atty. Alverez who conducted the presentation of
evidence while respondent David assisted him The records also review that
respondent David prepared and signed for Atty. Alverez and himself. certain
pleadings, including a memorandum. Moreover, after the lower court rendered
judgment on June 2 4, 1963 ordering the reinstatement and payment of back
salaries to petitioner Corpus and awarding him P5,000.00 by way of attorney's fees,
both petitioner Corpus and the respondents in said case appealed the judgment. At
that stage, respondent David again prepared and signed for Atty. Alvarez and
himself, the necessary pleadings, including two appeal briefs. And in addition, he
made oral arguments in the hearings of motions filed in the lower court before the
records of the case were forwarded to the appellate court. Furthermore, while it
appears that it was Atty. Alvarez who laid down the basic theory and foundation of
the case of petitioner Corpus in the administrative case and later in the civil case,
respondent David also advanced legal propositions. Petitioner Corpus contends that
said legal propositions were invariably rejected by the courts. This is, however, of
no moment because the fact remains that respondent David faithfully rendered
legal services for the success of petitioner's case.
The benefits secured for petitioner Corpus may also be considered in ascertaining
what should be the compensation of respondent David. It cannot be denied that
both Atty. Alvarez and respondent David were instrumental in obtaining substantial
benefits for petitioner Corpus which consisted primarily of his reinstatement,
recovery of back salaries and the vindication of his honor and reputation. But, note
should also be taken of the fact that respondent David came at the crucial stage
when the case of petitioner Corpus was dismissed by the lower court.
Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus the sum of
P20,000.00 or at most P22,500.00 (T.s.n., Jan. 11, 1967, pp. 34-35; T.s.n., Feb. 10,
1967, pp. 48-49). On the other hand, petitioner Corpus, after WE suggested on
August 15, 1975 that they settle the case amicably has, in his September 15, 1975
pleading filed before this Court (p. 166, rec.), manifested his willingness to pay
P10,000.00 for the services of respondent David. However, respondent David has
not manifested his intention to accept the offer.
In his complaint in the instant case, he asked for P75,000.00 as his attorney's fees.
The records reveal that petitioner Corpus actually received only P150,158.50 as
back salaries and emoluments after deducting taxes as well as retirement and life
insurance premiums due to the GSIS. The amount thus claimed by respondent
David represents 50% of the amount actually received by petitioner Corpus. The
lower court, however, awarded only P30,000.00 and it was affirmed by the Court of
Appeals.
Considering the aforestated circumstances, WE are of the opinion that the
reasonable compensation of respondent David should be P20,000.00.
V
WE find private respondent Juan T. David and Judge Jose H. Tecson, Presiding Judge
of the Court of First Instance of Manila, Branch V, guilty of contempt of court.
Respondent David filed on or about September 13, 1978 a motion with the court a
quo for the issuance of a writ of execution to enforce its decision in Civil Case No
61802, subject of the present petition, knowing fully well that it was then still
pending appeal before this Court. In addition, no certification that the aforesaid
decision is already deemed affirmed had as yet been issued by the Chief Justice
pursuant to Section 11, paragraph 2, Article X of the New Constitution; because
respondent David's petitions filed with the Supreme Court on January 31, 1978 and
on July 7, 1978 to remand the case to the trial court for execution and for the
issuance of such certification had not yet been acted upon as the same were still
pending consideration by this Court. In fact, this Court has not as of this time made
any pronouncement on the aforesaid provision of the New Constitution.
This act of respondent David constitutes disrespect to, as well as disregard of, the
authority of this Court as the final arbiter of all cases duly appealed to it, especially
constitutional questions. It must be emphasized that as a member of the Philippine
Bar he is required "to observe and maintain the respect due to the court of justice
and judicial officers" (Section 20 (b), 138 of the Revised Rules of Court). Likewise,
Canon 1 of. the Canons of Professional Ethic expressly provide that: "It is the duty of
the lawyer to maintain towards the Courts a respectful attitude, not for the sake of
the temporary incumbent of the judgement office, but for the maintenance of its
supreme importance." And this Court had stressed that "the duty of an attorney to
the courts 'can only be maintained by rendering no service involving any disrespect
to the judicial office which he is bound to uphold'" (Rheem of the Philippines v.
Ferrer, 20 SCRA 441, 444 [1967] citing the case of Lualhati v. Albert, 67 Phil. 86, 92
[1932]).
Moreover, this Court takes judicial notice of the fact that herein respondent David,
in the previous case of Integrated Construction Services, Inc. and Engineering
Construction, Inc. v. Relova (65 SCRA 638 [1975]), had sent letters addressed to the
then Chief Justice Querube C. Makalintal and later to the late Chief Justice Fred Ruiz
Castro, requesting for the issuance of certification on the basis of the
aforementioned provision of the New Constitution which were not given due
consideration. And knowing this, respondent David should have been more prudent
and cautious in g with the court a quo any motion for execution.
Furthermore, there was even a taint of arrogance and defiance on the part of
respondent David in not filing his comment to the letter- complaint dated October
18, 1978 of petitioner Corpus, as required by this Court in its November 3, 1978 and
December 4,1978 resolutions which were duly received by him, and instead, he WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO PAY
sent on December 13, 1978 a letter requesting to be excused from the filing of his RESPONDENT ATTY. JUAN T. DAVID THE SUM OF TWENTY THOUSAND (P20,000.00)
comment on the lame excuse that petitioner's letter-complaint was not verified. PESOS AS ATTORNEY'S FEES.
RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON OF THE COURT OF
On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of FIRST INSTANCE OF MANILA, BRANCH V, ARE HEREBY DECLARED GUILTY OF
granting the motion for execution of dent David likewise constitutes disrespect to, CONTEMPT AND ARE HEREBY REPRIMANDED, WITH A WARNING THAT REPETITION
as well as of, the authority of this Court because he know for a that the case was TION OF THE SAME OR SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY.
still pending apply as the had not yet been remanded to it and that no certification COSTS AGAINST PETITIONER. SO ORDERED.
has been issued by this Court. As a judicial officer, Judge Tecson is charged with the
knowledge of the fact that this Court has yet to make a definite pronouncement on
Section 11, paragraph 2, Article X of the New Constitution. Judge Tecson should
know that only the Supreme Court can authoritatively interpret Section 11 (2) of
Article X of the 1973 Constitution. Yet, Judge Tecson assumed the role of the
Highest Court of the Land. He should be reminded of what Justice Laurel speaking
for the Court, has said in People v. Vera (65 Phil 56, 82 [1937]):

A becoming modesty of inferior courts demands conscious realization of the

position that they occupy in the interrelation and operation of the integrated
judged system of the nation.

It may also be added that the improvident act of respondent David in firing the
motion for execution and the precipitate act of Judge Tecson in issuing the writ of
execution are intriguing as they invite suspicion that there was connivance between
the two. Respondent David would seem to imply that his claim for attorney's fees
should be given preference over the other cams now pending in this Court.
Certainly, such should not be the case because there are cases which by their
nature require immediate or preferential attention by this Tribunal like habeas
corpus cases, labor cases and c cases involving death sentence, let alone cases
involving properties and property rights of poor litigants pending decision or
resolution long before the New Constitution of 1973. Nobility and exempt
forbearance were expected of Atty. David, who is old and experienced in the
practice of the legal profession, from which he has derived a great measure. of
economic well-being and independence

Consequently, the filing of the motion for immediate tion and the issuance of the
writ of execution constitute a defiance and usurpation of the jurisdiction of the
Supreme Court. As a disciplinary measure for the preservation and vindication of
the dignity of this Supreme Tribunal respondent Atty. Juan T. David should be
REPRIMANDED for his precipitate action of filing a motion for execution as well as
Judge Jose H. Tecson for his improvident issuance of a writ of execution while the
case is pending appeal before the Supreme Court, and a repetition of said acts
would be dealt with more severely.
[G.R. No. 122494. October 8, 1998]
EVERETT STEAMSHIP CORPORATION, petitioner, vs. COURT OF APPEALS and
HERNANDEZ TRADING CO. INC., respondents.
DECISION
MARTINEZ, J.:
Petitioner Everett Steamship Corporation, through this petition for review, seeks
the reversal of the decision[1] of the Court of Appeals, dated June 14, 1995, in CA-
G.R. No. 428093, which affirmed the decision of the Regional Trial Court of
Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to
private respondent Hernandez Trading Co., Inc. for the value of the lost cargo.
Private respondent imported three crates of bus spare parts marked as
MARCO C/No. 12, MARCO C/No. 13 and MARCO C/No. 14, from its supplier,
Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation based
in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on
board ADELFAEVERETTE, a vessel owned by petitioners principal, Everett Orient
Lines. The said crates were covered by Bill of Lading No. NGO53MN.
Upon arrival at the port of Manila, it was discovered that the crate marked MARCO
C/No. 14 was missing. This was confirmed and admitted by petitioner in its letter of
January 13, 1992 addressed to private respondent, which thereafter made a formal
claim upon petitioner for the value of the lost cargo amounting to One Million Five
Hundred Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown
in an Invoice No. MTM-941, dated November 14, 1991. However, petitioner offered
to pay only One Hundred Thousand (Y100,000.00) Yen, the maximum amount
stipulated under Clause 18 of the covering bill of lading which limits the liability of
petitioner.
Private respondent rejected the offer and thereafter instituted a suit for collection
docketed as Civil Case No. C-15532, against petitioner before the Regional Trial
Court of Caloocan City, Branch 126.
At the pre-trial conference, both parties manifested that they have no testimonial
evidence to offer and agreed instead to file their respective memoranda.
On July 16, 1993, the trial court rendered judgment[2] in favor of private
respondent, ordering petitioner to pay: (a) Y1,552,500.00; (b) Y20,000.00 or its peso
equivalent representing the actual value of the lost cargo and the material and
packaging cost; (c) 10% of the total amount as an award for and as contingent
attorneys fees; and (d) to pay the cost of the suit. The trial court ruled:
Considering defendants categorical admission of loss and its failure to overcome
the presumption of negligence and fault, the Court conclusively finds defendant
liable to the plaintiff. The next point of inquiry the Court wants to resolve is the
extent of the liability of the defendant. As stated earlier, plaintiff contends that
defendant should be held liable for the whole value for the loss of the goods in the
amount of Y1,552,500.00 because the terms appearing at the back of the bill of
lading was so written in fine prints and that the same was not signed by plaintiff or
shipper thus, they are not bound by the clause stated in paragraph 18 of the bill of
lading. On the other hand, defendant merely admitted that it lost the shipment but
shall be liable only up to the amount of Y100,000.00.
The Court subscribes to the provisions of Article 1750 of the New Civil Code -
Art. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.
It is required, however, that the contract must be reasonable and just under the
circumstances and has been fairly and freely agreed upon. The requirements
provided in Art. 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport.
In the case at bar, the Court is of the view that the requirements of said article have
not been met. The fact that those conditions are printed at the back of the bill of
lading in letters so small that they are hard to read would not warrant the
presumption that the plaintiff or its supplier was aware of these conditions such
that he had fairly and freely agreed to these conditions. It can not be said that the
plaintiff had actually entered into a contract with the defendant, embodying the
conditions as printed at the back of the bill of lading that was issued by the
defendant to plaintiff.
On appeal, the Court of Appeals deleted the award of attorneys fees but affirmed
the trial courts findings with the additional observation that private respondent can
not be bound by the terms and conditions of the bill of lading because it was
not privy to the contract of carriage. It said:
As to the amount of liability, no evidence appears on record to show that the
appellee (Hernandez Trading Co.) consented to the terms of the Bill of Lading. The
shipper named in the Bill of Lading is Maruman Trading Co., Ltd. whom the
appellant (Everett Steamship Corp.) contracted with for the transportation of the
lost goods.
Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the
terms of the bill of lading when it delivered the cargo to the appellant, still it does
not necessarily follow that appellee Hernandez Trading Company as consignee is
bound thereby considering that the latter was never privy to the shipping contract.
xxxxxxxxx
Never having entered into a contract with the appellant, appellee should therefore
not be bound by any of the terms and conditions in the bill of lading.
Hence, it follows that the appellee may recover the full value of the shipment lost,
the basis of which is not the breach of contract as appellee was never a privy to the
any contract with the appellant, but is based on Article 1735 of the New Civil Code,
there being no evidence to prove satisfactorily that the appellant has overcome the
presumption of negligence provided for in the law.
Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that
the consent of the consignee to the terms and conditions of the bill of lading is
necessary to make such stipulations binding upon it; (2) in holding that the carriers
limited package liability as stipulated in the bill of lading does not apply in the
instant case; and (3) in allowing private respondent to fully recover the full alleged
value of its lost cargo.
We shall first resolve the validity of the limited liability clause in the bill of lading.
A stipulation in the bill of lading limiting the common carriers liability for loss or
destruction of a cargo to a certain sum, unless the shipper or owner declares a
greater value, is sanctioned by law, particularly Articles 1749 and 1750 of the Civil
Code which provide:
ART. 1749. A stipulation that the common carriers liability is limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
ART. 1750. A contract fixing the sum that may be recovered by the owner or shipper
for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been freely and fairly agreed upon.
Such limited-liability clause has also been consistently upheld by this Court in a
number of cases.[3] Thus, in Sea Land Service, Inc. vs Intermediate Appellate
Court[4], we ruled:
It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did
not exist, the validity and binding effect of the liability limitation clause in the bill of
lading here are nevertheless fully sustainable on the basis alone of the cited Civil
Code Provisions. That said stipulation is just and reasonable is arguable from the
fact that it echoes Art. 1750 itself in providing a limit to liability only if a greater
value is not declared for the shipment in the bill of lading. To hold otherwise would
amount to questioning the justness and fairness of the law itself, and this the
private respondent does not pretend to do. But over and above that consideration,
the just and reasonable character of such stipulation is implicit in it giving the
shipper or owner the option of avoiding accrual of liability limitation by the simple
and surely far from onerous expedient of declaring the nature and value of the
shipment in the bill of lading..
Pursuant to the afore-quoted provisions of law, it is required that the stipulation
limiting the common carriers liability for loss must be reasonable and just under the
circumstances, and has been freely and fairly agreed upon.
The bill of lading subject of the present controversy specifically provides, among
others:
18. All claims for which the carrier may be liable shall be adjusted and settled on the
basis of the shippers net invoice cost plus freight and insurance premiums, if paid,
and in no event shall the carrier be liable for any loss of possible profits or any
consequential loss.
The carrier shall not be liable for any loss of or any damage to or in any connection
with, goods in an amount exceeding One Hundred Thousand Yen in Japanese
Currency (Y100,000.00) or its equivalent in any other currency per package or
customary freight unit (whichever is least) unless the value of the goods higher than
this amount is declared in writing by the shipper before receipt of the goods by the
carrier and inserted in the Bill of Lading and extra freight is paid as
required. (Emphasis supplied)
The above stipulations are, to our mind, reasonable and just. In the bill of lading,
the carrier made it clear that its liability would only be up to One Hundred
Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading, had the
option to declare a higher valuation if the value of its cargo was higher than the
limited liability of the carrier. Considering that the shipper did not declare a higher
valuation, it had itself to blame for not complying with the stipulations.
The trial courts ratiocination that private respondent could not have fairly and
freely agreed to the limited liability clause in the bill of lading because the said
conditions were printed in small letters does not make the bill of lading invalid.
We ruled in PAL, Inc. vs. Court of Appeals[5] that the jurisprudence on the matter
reveals the consistent holding of the court that contracts of adhesion are not
invalid per se and that it has on numerous occasions upheld the binding effect
thereof. Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines ,
Inc.[6] this Court , speaking through the learned Justice Florenz D. Regalado, held:
x x x Ong Yiu vs. Court of Appeals, et.al., instructs us that contracts of
adhesion wherein one party imposes a ready-made form of contract on the other x
x x are contracts not entirely prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres he gives his consent. In the present
case, not even an allegation of ignorance of a party excuses non-compliance with
the contractual stipulations since the responsibility for ensuring full comprehension
of the provisions of a contract of carriage devolves not on the carrier but on the
owner, shipper, or consignee as the case may be. (Emphasis supplied)
It was further explained in Ong Yiu vs Court of Appeals[7] that stipulations in
contracts of adhesion are valid and binding.
While it may be true that petitioner had not signed the plane ticket x x, he is
nevertheless bound by the provisions thereof. Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latters lack of knowledge or assent to the regulation. It is what is
known as a contract of adhesion, in regards which it has been said that contracts of
adhesion wherein one party imposes a ready-made form of contract on the other,
as the plane ticket in the case at bar, are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. x x x , a contract limiting liability upon an agreed valuation does
not offend against the policy of the law forbidding one from contracting against his
own negligence. (Emphasis supplied)
Greater vigilance, however, is required of the courts when dealing with contracts of
adhesion in that the said contracts must be carefully scrutinized in order to shield
the unwary (or weaker party) from deceptive schemes contained in ready-made
covenants,[8] such as the bill of lading in question. The stringent requirement which
the courts are enjoined to observe is in recognition of Article 24 of the Civil Code
which mandates that (i)n all contractual, property or other relations, when one of
the parties is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must be
vigilant for his protection.
The shipper, Maruman Trading, we assume, has been extensively engaged in the
trading business. It can not be said to be ignorant of the business transactions it
entered into involving the shipment of its goods to its customers. The shipper could
not have known, or should know the stipulations in the bill of lading and there it
should have declared a higher valuation of the goods shipped. Moreover, Maruman
Trading has not been heard to complain that it has been deceived or rushed into
agreeing to ship the cargo in petitioners vessel. In fact, it was not even impleaded in
this case.
The next issue to be resolved is whether or not private respondent, as consignee,
who is not a signatory to the bill of lading is bound by the stipulations thereof.
Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held
that even if the consignee was not a signatory to the contract of carriage between
the shipper and the carrier, the consignee can still be bound by the
contract. Speaking through Mr. Chief Justice Narvasa, we ruled:
To begin with, there is no question of the right, in principle, of a consignee in a bill
of lading to recover from the carrier or shipper for loss of, or damage to goods
being transported under said bill, although that document may have been- as in
practice it oftentimes is-drawn up only by the consignor and the carrier without the
intervention of the consignee. x x x.
x x x the right of a party in the same situation as respondent here, to recover for
loss of a shipment consigned to him under a bill of lading drawn up only by and
between the shipper and the carrier, springs from either a relation of agency that
may exist between him and the shipper or consignor, or his status as stranger in
whose favor some stipulation is made in said contract, and who becomes a party
thereto when he demands fulfillment of that stipulation, in this case the delivery of
the goods or cargo shipped. In neither capacity can he assert personally, in bar to
any provision of the bill of lading, the alleged circumstance that fair and free
agreement to such provision was vitiated by its being in such fine print as to be
hardly readable. Parenthetically, it may be observed that in one comparatively
recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15)
where this Court found that a similar package limitation clause was printed in the
smallest type on the back of the bill of lading, it nonetheless ruled that the
consignee was bound thereby on the strength of authority holding that such
provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.
There can, therefore, be no doubt or equivocation about the validity and
enforceability of freely-agreed-upon stipulations in a contract of carriage or bill of
lading limiting the liability of the carrier to an agreed valuation unless the shipper
declares a higher value and inserts it into said contract or bill. This proposition,
moreover, rests upon an almost uniform weight of authority. (Underscoring
supplied)
When private respondent formally claimed reimbursement for the missing goods
from petitioner and subsequently filed a case against the latter based on the very
same bill of lading, it (private respondent) accepted the provisions of the contract
and thereby made itself a party thereto, or at least has come to court to enforce
it.[9] Thus, private respondent cannot now reject or disregard the carriers limited
liability stipulation in the bill of lading. In other words, private respondent is bound
by the whole stipulations in the bill of lading and must respect the same.

Private respondent, however, insists that the carrier should be liable for the full
value of the lost cargo in the amount of Y1,552,500.00, considering that the
shipper, Maruman Trading, had "fully declared the shipment x x x, the contents of
each crate, the dimensions, weight and value of the contents,"[10] as shown in the
commercial Invoice No. MTM-941.

This claim was denied by petitioner, contending that it did not know of the
contents, quantity and value of "the shipment which consisted of three pre-packed
crates described in Bill of Lading No. NGO-53MN merely as 3 CASES SPARE
PARTS.[11]

The bill of lading in question confirms petitioners contention. To defeat the carriers
limited liability, the aforecited Clause 18 of the bill of lading requires that the
shipper should have declared in writing a higher valuation of its goods before
receipt thereof by the carrier and insert the said declaration in the bill of lading,
with the extra freight paid. These requirements in the bill of lading were never
complied with by the shipper, hence, the liability of the carrier under the limited
liability clause stands. The commercial Invoice No. MTM-941 does not in itself
sufficiently and convincingly show that petitioner has knowledge of the value of the
cargo as contended by private respondent. No other evidence was proffered by
private respondent to support is contention. Thus, we are convinced that petitioner
should be liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred
Thousand (Y100,000.00) Yen, pursuant to Clause 18 of the bill of lading.

WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R.
CV No. 42803 is hereby REVERSED and SET ASIDE.

SO ORDERED.
[G.R. No. 123793. June 29, 1998]
ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO SARMIENTO
JR., respondents.
DECISION
PANGANIBAN, J.:
In a merger, does the surviving corporation have a right to enforce a contract
entered into by the absorbed company subsequent to the date of the merger
agreement, but prior to the issuance of a certificate of merger by the Securities and
Exchange Commission?
The Case
This is a 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. 26465 promulgated on
January 30, 1996, which answered the above question in the negative. The
challenged Decision reversed and set aside the October 17, 1986 Decision[3] in Civil
Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48,
which disposed of the controversy in favor of herein petitioner as follows:[4]
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated
Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff:
1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully
paid;
2. The amount of P200,000.00 as and for attorneys fees; and
3. The costs of suit.
On the other hand, the Court of Appeals resolved the case in this wise:[5]
WHEREFORE, premises considered, the decision appealed from, dated October 17,
1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING
plaintiff-appellees complaint, docketed as Civil Case No. 85-32243. There is no
pronouncement as to costs.
The Facts
The undisputed factual antecedents, as narrated by the trial court and adopted by
public respondent, are as follows:[6]
x x x [O]n or about September 16, 1975 Associated Banking Corporation and
Citizens Bank and Trust Company merged to form just one banking corporation
known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981,
the Associated Citizens Bank changed its corporate name to Associated Bank by
virtue of the Amended Articles of Incorporation. On September 7, 1977, the
defendant executed in favor of Associated Bank a promissory note whereby the
former undertook to pay the latter the sum of P2,500,000.00 payable on or before
March 6, 1978. As per said promissory note, the defendant agreed to pay interest at
14% per annum, 3% per annum in the form of liquidated damages, compounded
interests, and attorneys fees, in case of litigation equivalent to 10% of the amount
due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00
exclusive of interest and other charges. Despite repeated demands the defendant
failed to pay the amount due.
xxx xxx xxx
x x x [T]he defendant denied all the pertinent allegations in the complaint and
alleged as affirmative and[/]or special defenses that the complaint states no valid
cause of action; that the plaintiff is not the proper party in interest because the
promissory note was executed in favor of Citizens Bank and Trust Company; that
the promissory note does not accurately reflect the true intention and agreement
of the parties; that terms and conditions of the promissory note are onerous and
must be construed against the creditor-payee bank; that several partial payments
made in the promissory note are not properly applied; that the present action is
premature; that as compulsory counterclaim the defendant prays for attorneys
fees, moral damages and expenses of litigation.
On May 22, 1986, the defendant was declared as if in default for failure to appear at
the Pre-Trial Conference despite due notice.
A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22,
1986 was filed by defendants counsel which was denied by the Court in [an] order
dated September 16, 1986 and the plaintiff was allowed to present its evidence
before the Court ex-parte on October 16, 1986.
At the hearing before the Court ex-parte, Esteban C. Ocampo testified that x x x he
is an accountant of the Loans and Discount Department of the plaintiff bank; that as
such, he supervises the accounting section of the bank, he counterchecks all the
transactions that transpired during the day and is responsible for all the accounts
and records and other things that may[ ]be assigned to the Loans and Discount
Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has
an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr.
executed a promissory note No. TL-2649-77 dated September 7, 1977 in the
amount of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the
Citizens Bank and Trust Company merged to form one banking corporation known
as the Associated Citizens Bank and is now known as Associated Bank by virtue of
its Amended Articles of Incorporation; that there were partial payments made but
not full; that the defendant has not paid his obligation as evidenced by the latest
statement of account (Exh. B); that as per statement of account the outstanding
obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63
(Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its
counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh.
C, C-1, C-2, C-3); that the defendant paid only P1,000,000.00 which is reflected in
the Exhibit C.
Based on the evidence presented by petitioner, the trial court ordered Respondent
Sarmiento to pay the bank his remaining balance plus interests and attorneys
fees. In his appeal, Sarmiento assigned to the trial court several errors, namely:[7]
I The [trial court] erred in denying appellants motion to dismiss appellee banks
complaint on the ground of lack of cause of action and for being barred by
prescription and laches.
II The same lower court erred in admitting plaintiff-appellee banks amended
complaint while defendant-appellants motion to dismiss appellee banks original
complaint and using/availing [itself of] the new additional allegations as bases in
denial of said appellants motion and in the interpretation and application of the
agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the
Philippines.
III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as
if in default orders dated May 22, 1986 and September 16, 1986 and in not
reconsidering the same upon technical grounds which in effect subvert the best
primordial interest of substantial justice and equity.
IV The court a quo erred in issuing the orders dated May 22, 1986 and September
16, 1986 declaring appellant as if in default due to non-appearance of appellants
attending counsel who had resigned from the law firm and while the parties [were]
negotiating for settlement of the case and after a one million peso payment had in
fact been paid to appellee bank for appellants account at the start of such
negotiation on February 18, 1986 as act of earnest desire to settle the obligation in
good faith by the interested parties.
V The lower court erred in according credence to appellee banks Exhibit B
statement of account which had been merely requested by its counsel during the
trial and bearing date of September 30, 1986.
VI The lower court erred in accepting and giving credence to appellee banks 27-
year-old witness Esteban C. Ocampo as of the date he testified on October 16,
1986, and therefore, he was merely an eighteen-year-old minor when appellant
supposedly incurred the foisted obligation under the subject PN No. TL-2649-77
dated September 7, 1977, Exhibit A of appellee bank.
VII The [trial court] erred in adopting appellee banks Exhibit B dated September 30,
1986 in its decision given in open court on October 17, 1986 which exacted
eighteen percent (18%) per annum on the foisted principal amount of P2.5 million
when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum
and which was actually prayed for in appellee banks original and amended
complaints.
VIII The appealed decision of the lower court erred in not considering at all
appellants affirmative defenses that (1) the subject PN No. TL-2649-77 for P2.5
million dated September 7, 1977, is merely an accommodation pour autrui bereft of
any actual consideration to appellant himself and (2) the subject PN is a contract of
adhesion, hence, [it] needs [to] be strictly construed against appellee bank --
assuming for granted that it has the right to enforce and seek collection thereof.
IX The lower court should have at least allowed appellant the opportunity to
present countervailing evidence considering the huge amounts claimed by appellee
bank (principal sum of P2.5 million which including accrued interests, penalties and
cost of litigation totaled P4,689,413.63) and appellants affirmative defenses --
pursuant to substantial justice and equity.
The appellate court, however, found no need to tackle all the assigned errors and
limited itself to the question of whether [herein petitioner had] established or
proven a cause of action against [herein private respondent]. Accordingly,
Respondent Court held that the Associated Bank had no cause of action against
Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note
executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The
court ruled that the earlier merger between the two banks could not have vested
Associated Bank with any interest arising from the promissory note executed in
favor of CBTC after such merger.
Thus, as earlier stated, Respondent Court set aside the decision of the trial court
and dismissed the complaint. Petitioner now comes to us for a reversal of this
ruling.[8]
Issues
In its petition, petitioner cites the following reasons:[9]
I The Court of Appeals erred in reversing the decision of the trial court and in
declaring that petitioner has no cause of action against respondent over the
promissory note.
II The Court of Appeals also erred in declaring that, since the promissory note was
executed in favor of Citizens Bank and Trust Company two years after the merger
between Associated Banking Corporation and Citizens Bank and Trust Company,
respondent is not liable to petitioner because there is no privity of contract
between respondent and Associated Bank.
III The Court of Appeals erred when it ruled that petitioner, despite the merger
between petitioner and Citizens Bank and Trust Company, is not a real party in
interest insofar as the promissory note executed in favor of the merger.
In a nutshell, the main issue is whether Associated Bank, the surviving corporation,
may enforce the promissory note made by private respondent in favor of CBTC, the
absorbed company, after the merger agreement had been signed.
The Courts Ruling
The petition is impressed with merit.
The Main Issue:
Associated Bank Assumed
All Rights of CBTC
Ordinarily, in the merger of two or more existing corporations, one of the
combining corporations survives and continues the combined business, while the
rest are dissolved and all their rights, properties and liabilities are acquired by the
surviving corporation.[10] Although there is a dissolution of the absorbed
corporations, there is no winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all their rights, privileges
and powers, as well as their liabilities.[11]
The merger, however, does not become effective upon the mere agreement of the
constituent corporations. The procedure to be followed is prescribed under the
Corporation Code.[12]Section 79 of said Code requires the approval by the
Securities and Exchange Commission (SEC) of the articles of merger which, in turn,
must have been duly approved by a majority of the respective stockholders
of the constituent corporations. The same provision further states that the merger
shall be effective only upon the issuance by the SEC of a certificate of merger.The
effectivity date of the merger is crucial for determining when the merged or
absorbed corporation ceases to exist; and when its rights, privileges, properties as
well as liabilities pass on to the surviving corporation.
Consistent with the aforementioned Section 79, the September 16, 1975
Agreement of Merger,[13] which Associated Banking Corporation (ABC) and Citizens
Bank and Trust Company (CBTC) entered into, provided that its effectivity shall, for
all intents and purposes, be the date when the necessary papers to carry out this
[m]erger shall have been approved by the Securities and Exchange
Commission.[14] As to the transfer of the properties of CBTC to ABC, the agreement
provides:
10. Upon effective date of the Merger, all rights, privileges, powers, immunities,
franchises, assets and property of [CBTC], whether real, personal or mixed, and
including [CBTCs] goodwill and tradename, and all debts due to [CBTC] on whatever
act, and all other things in action belonging to [CBTC] as of the effective date of the
[m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act
or deed, unless by express requirements of law or of a government agency, any
separate or specific deed of conveyance to legally effect the transfer or assignment
of any kind of property [or] asset is required, in which case such document or deed
shall be executed accordingly; and all property, rights, privileges, powers,
immunities, franchises and all appointments, designations and nominations, and all
other rights and interests of [CBTC] as trustee, executor, administrator, registrar of
stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of
persons mentally ill and in every other fiduciary capacity, and all and every other
interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were
of [CBTC], and title to any real estate, whether by deed or otherwise, vested in
[CBTC] shall not revert or be in any way impaired by reason thereof; provided,
however, that all rights of creditors and all liens upon any property of [CBTC] shall
be preserved and unimpaired and all debts, liabilities, obligations, duties and
undertakings of [CBTC], whether contractual or otherwise, expressed or implied,
actual or contingent, shall henceforth attach to [ABC] which shall be responsible
therefor and may be enforced against [ABC] to the same extent as if the same
debts, liabilities, obligations, duties and undertakings have been originally incurred
or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs
and counterclaims which [CBTC] has or might have and which shall pertain to
[ABC].[15]
The records do not show when the SEC approved the merger. Private respondents
theory is that it took effect on the date of the execution of the agreement itself,
which was September 16, 1975. Private respondent contends that, since he issued
the promissory note to CBTC on September 7, 1977 -- two years after the merger
agreement had been executed -- CBTC could not have conveyed or transferred to
petitioner its interest in the said note, which was not yet in existence at the time of
the merger. Therefore, petitioner, the surviving bank, has no right to enforce the
promissory note on private respondent; such right properly pertains only to CBTC.
Assuming that the effectivity date of the merger was the date of its execution, we
still cannot agree that petitioner no longer has any interest in the promissory
note. A closer perusal of the merger agreement leads to a different conclusion. The
provision quoted earlier has this other clause:
Upon the effective date of the [m]erger, all references to [CBTC] in any deed,
documents, or other papers of whatever kind or nature and wherever found shall
be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK,
as if such references were direct references to [ABC]. x x x[16] (Underscoring
supplied)
Thus, the fact that the promissory note was executed after the effectivity date of
the merger does not militate against petitioner. The agreement itself clearly
provides that all contracts -- irrespective of the date of execution -- entered into in
the name of CBTC shall be understood as pertaining to the surviving bank, herein
petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause
no longer specifically refers only to contracts existing at the time of the merger, no
distinction should be made. The clause must have been deliberately included in the
agreement in order to protect the interests of the combining banks; specifically, to
avoid giving the merger agreement a farcical interpretation aimed at evading
fulfillment of a due obligation.
Thus, although the subject promissory note names CBTC as the payee, the
reference to CBTC in the note shall be construed, under the very provisions of the
merger agreement, as a reference to petitioner bank, as if such reference [was a]
direct reference to the latter for all intents and purposes.
No other construction can be given to the unequivocal stipulation. Being clear, plain
and free of ambiguity, the provision must be given its literal meaning[17] and
applied without a convoluted interpretation. Verba legis non est recedendum.[18]
In light of the foregoing, the Court holds that petitioner has a valid cause of action
against private respondent. Clearly, the failure of private respondent to honor his
obligation under the promissory note constitutes a violation of petitioners right to
collect the proceeds of the loan it extended to the former.
Secondary Issues:
Prescription, Laches, Contract
Pour Autrui, Lack of Consideration
No Prescription
or Laches
Private respondents claim that the action has prescribed, pursuant to Article 1149
of the Civil Code, is legally untenable. Petitioners suit for collection of a sum of
money was based on a written contract and prescribes after ten years from the
time its right of action arose.[19] Sarmientos obligation under the promissory note
became due and demandable on March 6, 1978.Petitioners complaint was
instituted on August 22, 1985, before the lapse of the ten-year prescriptive
period. Definitely, petitioner still had every right to commence suit against the
payor/obligor, the private respondent herein.
Neither is petitioners action barred by laches. The principle of laches is a creation of
equity, which is applied not to penalize neglect or failure to assert a right within a
reasonable time, but rather to avoid recognizing a right when to do so would result
in a clearly inequitable situation[20] or in an injustice.[21] To require private
respondent to pay the remaining balance of his loan is certainly not inequitable or
unjust. What would be manifestly unjust and inequitable is his contention that CBTC
is the proper party to proceed against him despite the fact, which he himself
asserts, that CBTCs corporate personality has been dissolved by virtue of its merger
with petitioner. To hold that no payee/obligee exists and to let private respondent
enjoy the fruits of his loan without liability is surely most unfair and
unconscionable, amounting to unjust enrichment at the expense of
petitioner. Besides, this Court has held that the doctrine of laches is inapplicable
where the claim was filed within the prescriptive period set forth under the law.[22]
No Contract
Pour Autrui
Private respondent, while not denying that he executed the promissory note in the
amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note
was a contract pour autrui.
A stipulation pour autrui is one in favor of a third person who may demand its
fulfillment, provided he communicated his acceptance to the obligor before its
revocation. An incidental benefit or interest, which another person gains, is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person.[23]
Florentino vs. Encarnacion Sr.[24] enumerates the requisites for such contract: (1)
the stipulation in favor of a third person must be a part of the contract, and not the
contract itself; (2) the favorable stipulation should not be conditioned or
compensated by any kind of obligation; and (3) neither of the contracting parties
bears the legal representation or authorization of the third party. The fairest test in
determining whether the third persons interest in a contract is a stipulation pour
autrui or merely an incidental interest is to examine the intention of the parties as
disclosed by their contract.[25]

We carefully and thoroughly perused the promissory note, but found no stipulation
at all that would even resemble a provision in consideration of a third person. The
instrument itself does not disclose the purpose of the loan contract. It merely lays
down the terms of payment and the penalties incurred for failure to pay upon
maturity. It is patently devoid of any indication that a benefit or interest was
thereby created in favor of a person other than the contracting parties. In fact, in no
part of the instrument is there any mention of a third party at all. Except for his
barefaced statement, no evidence was proffered by private respondent to support
his argument. Accordingly, his contention cannot be sustained. At any rate, if
indeed the loan actually benefited a third person who undertook to repay the bank,
private respondent could have availed himself of the legal remedy of a third-party
complaint.[26] That he made no effort to implead such third person proves the
hollowness of his arguments.

Consideration

Private respondent also claims that he received no consideration for the promissory
note and, in support thereof, cites petitioners failure to submit any proof of his loan
application and of his actual receipt of the amount loaned. These arguments
deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private
respondent, speaks for itself. Respondent Sarmiento has not questioned the
genuineness and due execution thereof. No further proof is necessary to show that
he undertook to pay P2,500,000, plus interest, to petitioner bank on or before
March 6, 1978. This he failed to do, as testified to by petitioners accountant. The
latter presented before the trial court private respondents statement of
account[27] as of September 30, 1986, showing an outstanding balance
of P4,689,413.63 after deducting P1,000,000.00 paid seven months
earlier. Furthermore, such partial payment is equivalent to an express
acknowledgment of his obligation. Private respondent can no longer backtrack and
deny his liability to petitioner bank. A person cannot accept and reject the same
instrument.[28]

WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the
Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED.

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.
Camus and Delgado for plaintiff-appellant.
Crossfield & O'Brien for defendant-appellant.
Hartigan & Welch for intervenor-appellee.
AVANCEÑA, J.:
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:
MY DEAR MR. BURKE:
In connection with the yacht Bronzewing, I am in position and am willing to
entertain the purchase of it under the following terms:
(a) The purchase price to be P80,000, Philippine currency.
(b) Initial payment of P10,000 to be made within sixty (60) days.
(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.
(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.
Yours very truly,
(Sgd.) H. W. ELSER
Proposition 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.
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.
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.
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.
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.
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.
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.
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.
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.
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 also for the fact that the plaintiff was not in position to make a definite
offer.
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.
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.
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.
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.
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.
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.
Malcolm, Villamor and Ostrand, JJ., concur.
Johnson, J. dissents.
Street, J. did not sign.
Separate Opinions
JOHNS, J., concurring and dissenting:
I have read with much interest the opinion of Mr. Justice Avanceña, and in so far as
the facts are stated they are correctly stated. In my opinion many important and
material facts are not stated.
The storm center in this case is the legal construction to be place upon Exhibit 1. To
arrive at a correct conclusion, it is necessary and important to analyze the
preceding and subsequent letters which passed between the parties. The first is a
letter from Mr. Burke written on February 12, 1922, known as Exhibit D, to the
effect that for the purpose of organizing a yacht club, he placed a price on the yacht
of P120,000, which was open for thirty days, P20,000 of which was to go to Mr.
Elser as a commission for making the sale.
The testimony is conclusive that at the time the proposition was made, Mr. Burke
told Mr. Elser that he had no faith that such a deal would ever be made, and that
later it was abandoned.
On March 31, after his return from the southern islands trip, and after a conference
with Avery, Elser wrote Burke a letter, known as Exhibit B, in which he said:
I explained to him that I would take over the boat with your consent and be
responsible to him for the payment for these engines as well as the other
obligations to the bank. However, I told him I wasn't disposed to pay more than
P70,000 for the boat as she now stands.
After my talk with him in regard to the matter, he advised me that he wasn't
disposed to advance another cent, and refused to advise me as what his attitude is
towards the P100,000 which you now owe him on the boat, stating that he would
settle the matter with you.
From this is clearly appears that Elser was then willing to pay Burke P70,000 for the
yacht, and that the only thing which prevented the making of the deal at that time
was the price, and the further fact that the bank was not willing to release its
mortgage for P100,000, which it held on the yacht.
On receipt of this letter, and upon the same day, Burke had an interview with
Avery, and on March 31, 1922, wrote Mr. Elser the following letter:
I had a long talk this morning with Mr. Avery in regard to the Bronzewing. At first he
was not inclined to discuss the matter but after a while he decided that he would
accept the proposition relative to the disposal of the boat and has agreed on the
following terms:
He will turn the boat over to you for P8,000, taking the mortgage on the same and
you on part will agree to pay P5,000 a month for the first six months and P10,000 a
month until the balance is paid. This is absolutely the best he can do. I on my part
am agreeable to accept this proposition and if you feel the same please advise me
at once.
In answer to which, and on April 1, Elser wrote a letter to Burke, the material
portion of which is as follows:
With reference to your letter of March 31, I do not feel that I am in a position right
now to accept the proposition of Mr. Avery, of paying him five thousand pesos
monthly for the first six months and ten thousand a month until balance is paid.
April 3, Burke went to Elser's office and obtained from him the letter, known in the
record as Exhibit 1, which is 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:
(a) The purchase price to be P80,000, Philippine currency.
(b) Initial payment of P10,000 to be made within sixty (60) days.
(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 semi-annually.
(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.
Upon receipt of this letter, Burke went direct from Elser's office to Avery's office,
and obtained from Avery the written consent of the bank to sell the yacht under the
terms and conditions proposed by Elser, and then unconditionally accepted the
offer, and on the same day notified Elser of the consent and acceptance. The
acceptance and agreement was made in writing on the bottom of the same sheet of
Elser's letter and are as follows:
Proposition Accepted.
(Sgd.) E. BURKE
MANILA, April 3, 1922.
ASIA BKG. CORP.
Agreed to as above.
(Sgd.) W. G. AVERY
 Mgr.
Asia Bkg. Corp.
With such endorsement and in this form, the letter was returned to Elser's office on
the day it was received.
April 5, two days later, Elser wrote Burke a letter, the material provisions of which
are as follows:
I have decided, because of the attitude of Mr. Avery regarding the advancement to
me of P20,000 to install new engines and put the boat in first class condition, that it
is impossible for me to assume the liability of the yacht Bronzewing.
But nowhere in this letter does Elser claim or assert that his letter of April 3 above
quoted, known in the record as Exhibit 1, was not an offer to purchase the yacht, or
that it was not intended as an offer.
Analyzing the combined letters, we are clearly of the opinion that the letter of April
3 should be construed as an offer to purchase, and that when it was accepted and
agreed to by both Burke and the bank, it then became and is now a valid and
binding contract to purchase.
Elser and Burke were not children. They were both men of affairs and experience in
business. They were not fooling or flirting with one another. Neither were they
playing marbles, but as businessmen, they were dealing with a business proposition
which involved P80,000.
In this connection, Burke testified:
I called on Mr. Elser personally in his office and asked him to make a proposition in
writing that he would be agreeable to, and that I could take to Mr. Avery, and if he
accepted would terminate the whole transaction.
It is very significant that this testimony is not denied, and that it stands as an
admitted fact in the record.
Analyzing the letters above quoted, on March 31, speaking about a conference with
Avery, Elser says to Burke:
However, I told him I wasn't disposed to pay more than P70,000 for the boat as she
now stands.
This can only be construed as an admission by Elser that he was then ready and
willing to pay "P70,000 for the boat as she now stands." In response to that letter
and after a conference with Avery, Burke wrote Elser to the effect that they would
sell the boat to him for P80,000, and take a mortgage upon it for the purchase price
to be paid at the rate of P5,000 a month for the six months, and P10,000 a month
until the balance is paid. From this it appears that Burke and the bank were not
willing to accept Elser's proposition to sell the boat for P70,000, but that they were
ready and willing to sell it for P80,000 upon the terms and conditions stated. In
answer to that, Elser wrote Burke as follows:
I do not feel that I am in a position right now to accept the proposition of Mr. Avery,
of paying him five thousand pesos monthly for the first six months and ten
thousand a month until balance is paid.
From this letter it will be noted that Elser did not object to the price of P80,000, and
that his only objection was to the terms of payment of P5,000 monthly for the first
six months, and P10,000 a month until the balance is paid.
The letters above quoted resulted in the conference between Burke and Elser in
Elser's office in which Elser personally dictated and signed Exhibit 1, in which the
price is P80,000, P10,000 of which is to be paid within sixty days, and the balance in
installments of P5,000 per month, with interest, and as security, Elser was to
deposit P80,000 in stock of the J. K. Pickering Company. From which it will be noted
that the only real difference between Burke's proposition to Elser, and Elser's
proposition to Burke is in the terms and conditions of payment, and the fact that, as
security, Elser was to pledge stock in the Pickering Company, as collateral, in lieu of
the mortgage on the yacht. Both propositions were specific, definite and certain as
to time, terms and conditions of payment, and the price to be paid.
When you take into consideration the previous negotiations between the parties,
and the purpose and intent with which Exhibit 1 was written, and Elser's letter of
April 6. Exhibit 1 must be construed as an offer to purchase the yacht upon the
terms and conditions therein specified.
Suppose the conditions were the reverse, and after the offer had been made and
accepted, Elser made a tender of performance, and that Burke and Avery refused to
perform, would any member of this court claim that both Burke and Avery are not
bound by the acceptance, or that either of them could refuse to carry out the
contract? Suppose Elser had offered to perform and complete the purchase, and
Burke had refused to complete the sale, would any member of this court claim that
Elser could not enforce the specific performance of the contract? If it is legally
binding upon Avery and Burke, then by the same token and for the same reason,
the contract of purchase is legally binding upon Elser.
The acceptance was written on the offer and delivered to Elser on April 3. All of
them were residents of Manila and had their respective offices in the city, and it is
fair to assume that they could communicate with each other by telephone.
Applying the rule of everyday business dealings between businessmen, what would
the ordinary businessman do under the same conditions? Here, the parties had
been negotiating some little time for the purchase and sale of the yacht. To find out
whether they could finally get together, Burke went to Elser's office and asked him
to make him a written proposition "that he would be agreeable to," and that he
would then submit it to Avery, "and if he accepted would terminate the whole
transaction." With that end in view, and for that purpose, Elser wrote the letter in
question.
It is very apparent that Burke understood it that way because upon receipt of the
letter, he went direct to see Avery, and after some discussion between them, Avery
agreed to the proposition, and Burke accepted it, and returned the letter to Elser's
office the day it was written. Upon seeing the letter, with the acceptance of Mr.
Burke and the conforme of Mr. Avery, what would the ordinary businessman have
done, knowing that they treated is as a valid and binding contract? Would he have
remained silent for two whole days? When he received and read the returned
letter, he knew how Burke and Avery construed the transaction, and what they
understood it to be. Yet, having that knowledge, he did not call either of them by
phone and say that, I did not intend to make you a final proposition to purchase,
and two days later notified them by letter that he did not then want to purchase
the yacht on account of the attitude of Avery. Business is not done between
businessmen in that way. If, upon the receipt of the returned letter, Elser had called
either of them by phone, and said in effect that he never intended to make a final
proposition to purchase, another and a different question would have been
presented, and his position would be tenable, and it would have been far more
forcible, if he had said that in substance in the letter which he wrote two days later.
In the final analysis, Elser said in his letter of March 31 that he was not "disposed to
pay more than P70,000 for the boat as she now stands." That was after the
conference which he had with Avery. Burke then had a conference with Avery in
which they agreed upon and submitted the following terms to Elser:
He will turn the boat over to you for P80,000, taking the mortgage on the same and
you on your part will agree to pay P5,000 a month for the first six months and
P10,000 a month until the balance is paid.
In other words, Burke and Avery made a proposition to Elser that they were ready
and willing to sell the yacht for P80,000 upon those terms and conditions. In answer
to that, Elser said:
I do not feel that I am in a position right now to accept the proposition of Mr. Avery,
of paying him five thousand pesos monthly for the first six months and ten
thousand a month until balance is paid.
In other words, Elser apparently was satisfied with the price, but objected only to
the terms and conditions of payment. This resulted in the final conference between
Elser and Burke in which Elser made a proposition, specifying the terms and
conditions upon which he was "willing to entertain the purchase" of the yacht, and
Burke and Avery accepted his proposition in and by which their proposition was
modified only as to the terms and conditions of payment. No change was made in
the price, and the only difference as to the payments was that in the Burke and
Avery proposition, Elser was to pay P5,000 a month for the first six months, and
P10,000 a month until the balance is paid, and in Elser's proposition, he was to
make an initial payment of P10,000 within six days, and the payment of the balance
was to be made in installments of P5,000 per month, with interest.
When Elser gave the letter to Burke, he knew that Burke would submit it to Avery,
and he knew that if Avery gave his conforme, it would be accepted by Burke.
Otherwise, why was the letter given to Burke? Why was it submitted to Avery?
In the light of preceding events, can this court assume that Elser intended to
mislead and deceive Burke and to give him a blank piece of paper which would not
have any legal force or effect? As a witness Elser testified:
Q. And at Mr. Burke's request you wrote this letter Exhibit 1? — A. Yes.
Why was it written? Why was it signed by Elser? Why did Avery give his conforme?
Why was it approved by Burke? And why was it returned on the same day to Elser?
Why did he remain silent for two days after the receipt of the returned letter? And
why, two to days later when he did answer, he never said that he did not intend
that the letter should be a final proposition? And why did he base his refusal to
carry out the contract upon the sole ground of the attitude of Avery, and not for
any other reason?
Under Elser's contention, and as sustained by Mr. Justice Avanceña's opinion, all of
the previous negotiations did not mean anything. The letter was a blank piece of
paper which Elser gave to Burke to deceive and mislead him, and yet he knew that
Burke took and received it in good faith as a proposition, which Elser was ready and
willing to carry out in the event that it received the conforme of Avery and was
approved by Burke. That is a strained and unnatural construction, and imputes to
Elser bad faith and a deceptive motive in the writing and the giving of the letter to
Burke. Avery and Burke had made their proposition to which Elser had declined to
agree. Then, as a result of a personal conference, Elser made his proposition to
which Elser had declined to agree. Then, as a result of a personal conference, Elser
made his proposition to Avery and Burke in which the price, terms of payment and
the security to be given for the sale and purchase of the yacht were all specified,
and his proposition was by them accepted and approved and returned to Elser the
day it was received. Everything was in writing and signed by the respective parties
in interest. Why is that not a valid and binding contract? What more is required?
When Elser's own proposition was accepted and approved and delivered to him,
the minds of the parties had met, and they had mutually agreed in writing upon the
price of the yacht, terms of payment and the security to be given.
There was a completed contract by which Elser proposed to purchase the yacht and
Burke and Avery agreed to sell upon the terms and conditions specified in Elser's
proposition. The yacht was then in Elser's possession, and nothing remained to be
done, except the payment of the purchase price by Elser.
The record is conclusive that Elser remained silent for two whole days when he
wrote Burke that because of the attitude of Mr. Avery regarding the advance to him
of P20,000, "that he would not assume liability" or make the purchase. In other
words, after a lapse of two days, and because of the attitude of Avery, and for no
other or different reason, Elser declined to make the purchase. It will be noted that
Exhibit 1 is unconditional, and that the proposition is not made contingent on the
attitude of Avery or anything else, and that it expressly says:
I am in position and am willing to entertain the purchase of if (the yacht) under the
following terms.
In his letter of April 1, he says:
I do not feel that I am in a position right now to accept the proposition of Mr. Avery.
In his letter of April 3, he says:
I am in position and am willing to entertain the purchase, etc.
In one letter he says in legal effect that "I am not in position to accept the
proposition of Mr. Avery," and two days later, he says: "I am in position." The use of
the words "I am not in position" on April 1, and the use of the words "I am in
position, two days later are, indeed; very significant. Yet, in the face of those letters,
on April 6, he declined to make the purchase solely on account of the attitude of
Avery, and for no other or different reason.
The proof brings the case squarely within the provisions of Article 1254 of the Civil
Code, which says:
A contract exists from the moment one or more persons consent to be bound with
respect to another or others to deliver something or to render some service.
Cyc., vol. 9, page 244, says;
E. Agreement defined. — Agreement is the expression by two or more persons of a
common intention to affect their legal relations; it consists in their being of the
same mind and intention concerning the matter agreed upon.
Page 247 —
2. Offer — (a) Definition. — An offer, as the term is used in the law of contracts, is a
proposal to enter into a contract.
Page 252 —
(d) Terms of offer — (I) In general. — One who makes an offer to enter into a
contract may do so of course upon any terms he may see fit, so long as they are not
illegal, and if the offer is accepted they are binding on both parties. If the terms are
expressed and are legal, the only difficulty is in ascertaining the intention of the
parties.
Page 260 —
(VI) Acceptance by accepting paper containing terms — (A) In general. — A contract
may be formed by accepting a paper containing terms. If an offer is made by
delivering to another a paper containing the terms of a proposed contract, and the
paper is accepted, the accepter is bound by its terms; and this is true as a rule
whether he reads the paper or not. . . .
Page 282 —
. . . On the other hand an agreement to make and execute a certain written
agreement, the terms of which are mutually understood and agreed upon, is in all
respects as valid and obligatory as the written contract itself would be if executed.
If therefore it appears that the minds of the parties have met, that a proposition for
a contract has been made by one party and accepted by the other, that the terms of
this contract are in all respects definitely understood and agreed upon, and that a
part of the mutual understanding is that a written contract embodying these terms
shall be drawn and executed by the respective parties, this is an obligatory
agreement.
Corpus Juris, vol. 13, page 263, says:
(SEC. 38) 2. Common intention — (a) In general. — In order that there may be an
agreement, the parties must have a distinct intention common to both and without
doubt or difference. Until all understand alike, there can be no assent, and,
therefore, no contract. Both parties must assent to the same thing in the same
sense, and their minds must meet as to all the terms. . . .
Page 266 —
SEC. 53) 2. Offer — (a) Definition. — An offer, as the terms is used in the law of
contracts, is a proposal to enter into a contract.
Page 271 —
(SEC. 61) (d) Terms of offer — (1) In general. — One who makes an offer to enter
into a contract may do so on any terms that he may see fit to make, as long as they
are not illegal; and if the offer is accepted, such terms are binding on both parties. If
the terms are expressed and are legal, the only difficulty is in ascertaining the
intention of the parties.
Page 277 —
(SEC. 76) (6) Acceptance by accepting paper containing terms — (a) In general. — A
contract may be formed by accepting a paper containing terms. If an offer is made
by delivering to another a paper containing the terms of a proposed contract, and
the paper is accepted, the acceptor is bound by its terms; and this is true as a rule
whether he reads the paper or not. ..."
Page 277 (Note ) —
"A great number of contracts are in the present state of society made by the
delivery by one of the contracting parties to the other of a document in a common
form, stating the terms by which the person delivering it will enter into the
proposed contract. Such a form constitutes the offer of the party who tenders it. If
the form is accepted without objection by the person to whom it is tendered this
person is as a general rule bound by its contents, and his act amounts to an
acceptance of the offer made to him, whether he reads the document or otherwise
informs himself of its contents or not." (Eng. — Watkins vs. Rymill, 10 Q. B. D., 178,
183.)
Ruling Case Law, vol., 6, page 599:
21. Generally. — In order that a contract may be formed there must be, as has been
seen, a concurrence of intention between a promisor and a promisee. Frequently
this idea is expressed by saying that it is essential to the formation of a contract that
there should be a "meeting of the minds" of the parties. It must appear that their
minds met on the same distinct and definite terms. . . .
Page 600 —
23. Offer or proposal. — A contract is ordinarily formed by an offer and an
acceptance. . . .
Page 605 —
Necessity and effect of acceptance. — From the discussion in reference to the right
to revoke an offer, it is apparent that the acceptance of an offer is essential. To
constitute a contract there must be an acceptance of the offer, because until the
offer is accepted both parties have not assented to the contract, or, in the figurative
language frequently used by the courts, their minds have not met. The effect of
acceptance is to convert the offer into a binding contract. . . .
Upon the question of contemporaneous writings and agreements, Cyc., vol., 35,
page 97, says:
In construing contracts of sale all contemporaneous instruments and agreements in
regard to the transaction should be construed together, and if possible so as to give
effect to all of them. . . .
Much has been said in this case about the definition of the word "entertain." It is
contended that because the word "entertain" was used in Elser's letter, it should be
construed to read, "I am now in a position to buy your yacht for P80,000 upon the
specified terms and conditions, and if you will make an offer to sell it at that price
and upon those conditions, I will purchase the yacht. But before I will enter into a
formal agreement to me that you are ready and willing to sell on those terms, and
until such time as you do submit such a proposition and I formally accept it, I am
not bound to purchase, even though we do agree upon the amount of the purchase
price, the terms and conditions of payment, and the security to be given." That is a
strained and unnatural construction, and nullifies the undisputed testimony of both
Burke and Elser, and overlooks and does not take into consideration the purpose
and intent with which the letter was written, and the language used in the previous
letters and the subsequent letter of April 6. When they are considered, the meaning
of the word "entertain" is very apparent. The minds of the parties had met. They
had agreed upon the price, the terms and conditions of the sale, and the security to
be given, all of which was reduced to writing, and signed by the respective parties,
and when that is done, under the authorities above cited, it constitutes a valid and
binding contract.
Stress is also laid upon the oral testimony of the employees of Elser, who were in
his office at the time the contract was prepared and signed.
This case forcibly illustrates the reason for the inflexible rule that oral testimony is
not admissible to change or vary the terms of a written contract. Here, the contract
was in writing, and Elser admits that he signed it. There is no dispute about any one
or either of the letters quoted in this opinion, and Burke's cause of action is
founded upon that letter.
It will be noted that all through this case, Burke relies upon evidence in writing,
which is signed by the respective parties, and about which there is not and cannot
be any dispute, because the writings speak for themselves. It will also be noted that
Elser's defense is largely founded upon oral testimony. That is specially true as to
the construction which should be placed upon Exhibit 1.
The rule is elementary that the court does not have any right to consider oral
testimony for any such purpose.

The complaint alleges: Again, all of the dealings between Elser and Burke were confined to the sale and
purchase of the yacht, and the repairs which were made upon it. Upon the question
That on the 3d day of April, 1922, the said plaintiff made an offer in writing to this
of repairs, Justice Avanceña finds against Elser and in favor of Burke. If the parol
defendant to purchase from him the said yacht Bronzewing, in its then condition
testimony on behalf of Elser upon the question of repairs is not true, as the court
and including, of course, the repairs placed thereon by him, for the sum of P80,000,
finds, it should materially weaken his parol evidence as to the sale and purchase of
payable P10,000 within sixty days, and the balance in installments of P5,000 per
the yacht. But the court finds that Elser's parol testimony as to the repairs upon the
month, with interest on deferred payments at 9 per cent per annum, payable semi-
yacht is not true, and finds that his parol testimony as to the sale and purchase of
annually, and that as security for such purchase price, he would deposit P80,000 in
the yacht is true.
stock of the J. K. Pickering Co., of a commercial value of P400,00, and a book value
of P600,00, which said offer was on the same date and while it was in full force and Why should the court find that his testimony is true in one case and false in the
effect unconditionally accepted by this defendant, with the written consent of the other? All of the transactions in question arose out of, and pertained to, mutual
said Asia Banking Corporation, and which said offer and acceptance is more fully set dealings concerning the yacht. If Elser's testimony is not true as to the repairs, it is
out in a certain letter, a true copy of which is attached hereto, marked Exhibit 1, not true as to the sale and purchase of the yacht.
and made a part hereof, and constitutes a binding contract of purchase and sale
Upon all other matters, I agree with the opinion of Justice Avanceña. But in the
and is obligatory on each of the parties thereto.
reversal of the judgment in favor of Burke and against Elser, I vigorously dissent.
Yet, in the face of those allegations and over the vigorous protests and objections of
Burke's attorneys, the oral testimony of Elser's employees was admitted, for the
purpose of showing that the written contract does not mean that it says.

There is no rule of law by which oral testimony is admissible for any such purpose,
and least of all should it be considered by an appellate court.

The stubborn fact remains that Elser wrote and signed the letter, and the specified
terms of the purchase were accepted and approved by both Avery and Burke, and
the letter was returned to Elser, and that all of the previous conversations between
Elser and Burke were merged in that letter, and that it is in writing and speaks for
itself. But it is contended that in preparing the letter, Burke wanted Elser to use the
words "firm offer," and that Elser declined to do so. Assuming that to be true, what
difference does it make? The fact remains that Elser did write and sign the letter as
it was written, and that it was accepted as written, and that parol testimony is not
admissible to change or alter the words or the meaning of the letter as it was
written, and that plaintiff relies upon the contract as it was written.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
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.
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.
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.
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.
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.
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.
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:
(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.
(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.
(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,3 that:
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 Rosa4 and Mercy's Incorporated v.
Herminia Verde.5
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:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or 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.
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.
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 1324, to an option or promise supported by or founded upon a consideration,
the offeree should decide to exercise his option within the specified time. After strongly suggests that the two (2) provisions intended to enforce or implement the
accepting the promise and before he exercises his option, the holder of the option same principle.
is not bound to buy. He is free either to buy or not to buy later. In this case,
Upon mature deliberation, the Court is of the considered opinion that it should, as
however, upon accepting herein petitioner's offer a bilateral promise to sell and to
it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that,
buy ensued, and the respondent ipso facto assumed the obligation of a purchaser.
insofar as inconsistent therewith, the view adhered to in the Southwestern Sugar &
He did not just get the right subsequently to buy or not to buy. It was not a mere
Molasses Co. case should be deemed abandoned or modified.
option then; it was a bilateral contract of sale.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
defendant-appellant Severina Rigos. It is so ordered.
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.)

"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.

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
in Southwestern 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.