Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISIONG.R.
No. 156841 June 30, 2005GF EQUITY, INC.,petitioner,vs.ARTURO
VALENZONA,respondent.D E C I S I O NCARPIO-MORALES,J.:On challenge
via Petition for Review onCertiorariis the Court of Appeals October
14, 2002 Decision1reversing that of the Regional Trial Court (RTC)
of Manila dated June 28, 19972which dismissed the complaint of
herein respondent Arturo Valenzona (Valenzona) for breach of
contract with damages against herein petitioner GF Equity, Inc. (GF
Equity).The factual antecedents of the case are as follows:GF
Equity, represented by its Chief Financial Officer W. Steven
Uytengsu (Uytengsu), hired Valenzona as Head Coach of the Alaska
basketball team in the Philippine Basketball Association (PBA)
under a Contract of Employment.3As head coach, the duties of
Valenzona were described in the contract to include the following:x
x x1. . . .coaching at all practices and gamesscheduled for the
CORPORATIONs TEAM during the scheduled season of the ASSOCIATION .
. .,coaching all exhibition gamesscheduled by the corporation as
approved by the PBA during and prior to the scheduled season,
coaching (if invited to participate) in the ASSOCIATIONs All Star
Game andattending every event conducted in association with the All
Star Game,andcoaching the play-off games subsequent to the
scheduled seasonbased on the athletic program of the PBA.x x x3.
The COACH agreesto observe and comply with all requirements of the
CORPORATION respecting conduct of its TEAM and its players, at all
times whether on or off the playing floor. The CORPORATION may,
from time to time during the continuance of this contract,
establish reasonable rules for the government of its players "at
home" and "on the road"; andsuch rules shall be part of this
contract as fully is (sic) if herein written and shall be the
responsibility of the COACH to implement; x x x4. The COACH agrees
(a) toreport at the time and place fixed by the CORPORATION in good
physical condition; (b) tokeep himself throughout the entire season
in good physical condition; (c) to give his best services, as well
as his loyalty to the CORPORATION, and to serve as basketball coach
for the CORPORATION and its assignees; (d) tobe neatly and fully
attired in public and always to conduct himself on and off the
courtaccording to the highest standards of honesty, morality, fair
play and sportsmanship; (e)not to do anything which is detrimental
to the best interests of the CORPORATION.x x x7. The COACH agrees
that if so requested by the CORPORATION, he willendorse the
CORPORATIONs products in commercial advertising, promotions and the
like. The COACH further agrees toallow the CORPORATIONor the
ASSOCIATION to take pictures of the COACHalone or together with
others, for still photographs, motion pictures or television, at
such times as the CORPORATION or the ASSOCIATION may designate, and
no matter by whom taken may be used in any manner desired by either
of them for publicity or promotional purposes. (Underscoring
supplied).x x xEven before the conclusion of the contract,
Valenzona had already served GF Equity under a verbal contract by
coaching its team, Hills Brothers, in the 3rd PBA Conference of
1987 where the team was runner-up.Under the contract, GF Equity
would pay Valenzona the sum of Thirty Five Thousand Pesos
(P35,000.00) monthly, net of taxes, and provide him with a service
vehicle and gasoline allowance.While the employment period agreed
upon was for two years commencing on January 1, 1988 and ending on
December 31, 1989, the last sentence of paragraph 3 of the contract
carried the following condition:3. x x x If at any time during the
contract, the COACH, in the sole opinion of the CORPORATION, fails
to exhibit sufficient skill or competitive ability to coach the
team, the CORPORATION may terminate this contract. (Emphasis
supplied)Before affixing his signature on the contract, Valenzona
consulted his lawyer who pointed out the one-sidedness of the
above-quoted last sentence of paragraph 3 thereof.
Thecaveatnotwithstanding, Valenzona still acceded to the terms of
the contract because he had trust and confidence in Uytengsu who
had recommended him to the management of GF Equity.During his stint
as Alaskas head coach, the team placed third both in the Open and
All-Filipino PBA Conferences in 1988.Valenzona was later advised by
the management of GF Equity by letter of September 26, 1988 of the
termination of his services in this wise:We regret to inform you
that under the contract of employment dated January 1, 1988 we are
invoking our rights specified in paragraph 3.You will continue to
be paid until your outstanding balance which, as of September 25,
1988, isP75,868.38 has been fully paid.Please return the service
vehicle to my office no later than September 30, 1988.4(Emphasis
supplied)Close to six years after the termination of his services,
Valenzonas counsel, by letter of July 30, 1994,5demanded from GF
Equity payment of compensation arising from the arbitrary and
unilateral termination of his employment. GF Equity, however,
refused the claim.Valenzona thus filed on September 26, 1994 before
the Regional Trial Court of Manila a complaint6against GF Equity
for breach of contract with damages, ascribing bad faith, malice
and "disregard to fairness and to the rights of the plaintiff" by
unilaterally and arbitrarily pre-terminating the contract without
just cause and legal and factual basis. He prayed for the award of
actual damages in the amount ofP560,000.00 representing his unpaid
compensation from September 26, 1988 up to December 31, 1989, at
the rate ofP35,000.00 a month; moral damages in the amount
ofP100,000.00; exemplary damages in the amount ofP50,000.00;
attorneys fees in the amount ofP100,000.00; and costs of
suit.Before the trial court, Valenzona challenged the condition in
paragraph 3 of the contract as lacking the element of mutuality of
contract, a clear transgression of Article 1308 of the New Civil
Code, and reliance thereon, he contended, did not warrant his
unjustified and arbitrary dismissal.GF Equity maintained, on the
other hand, that it merely exercised its right under the contract
to pre-terminate Valenzonas employment due to incompetence. And it
posited that he was guilty of laches and, in any event, his
complaint should have been instituted before a labor arbiter.The
trial court, upholding the validity of the assailed provision of
the contract, dismissed, by decision of June 28, 1997,7the
complaint of Valenzona who, it held, was fully aware of entering
into a bad bargain.The Court of Appeals, before which Valenzona
appealed, reversed the trial courts decision, by decision of
October 14, 2002,8and accordingly ordered GF Equity to pay him
damages.In its decision, the appellate court held that the
questioned provision in the contract "merely confers upon GF Equity
the right to fire its coach upon a finding of inefficiency,a valid
reason within the ambit of its management prerogatives,subject to
limitations imposed by law, although not expressly stated in the
clause"; and
"therightgrantedinthecontractcanneitherbesaidtobeimmoral,unlawful,orcontrarytopublicpolicy."
It concluded, however, that while "the mutuality of the clause" is
evident, GF Equity "abused its right by arbitrarily terminating . .
. Valenzonas employment and opened itself to a charge of bad
faith." Hence, finding that Valenzonas claim for damages is
"obviously . . . based on Art. 19 of the Civil Code" which
provides:Art. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.,the appellate
court awarded Valenzona the following damages, furnishing the
justification therefor:. . . a)Compensatory damagesrepresenting his
unearned income for 15 months. Actual and compensatory damages are
those recoverable because of a pecuniary loss in business, trade,
property, profession, job or occupation. As testified, his
employment contract provided a monthly income of PhP35,000, which
he lost from September 26, 1988 up to December 31, 1989 as a
consequence of his arbitrary dismissal; b) Moral damages of
PhP20,000. The act caused wounded feelings on the part of the
plaintiff.Moral damagesis recoverable under Article 2220 and the
chapter on Human Relations of the Civil Code (Articles 1936) when a
contract is breached in bad faith; c)Exemplary damagesof PhP20,000,
by way of example or correction for the public good; and d) When
exemplary damages are awarded, attorneys fees can also be given. We
deem it just to grant 10% of the actual damages asattorneys fees.
(Underscoring supplied)Hence, this petition at bar, GF Equity
faulting the appellate court in. . . CONCLUD[ING] WRONGLY FROM
ESTABLISHED FACTS IN A MANNER VIOLATIVE OF APPLICABLE LAWS AND
ESTABLISHED JURISPRUDENCE.9GF Equity argues that the appellate
court committed anon-sequiturwhen it agreed with the findings of
fact of the lower court but reached an opposite conclusion. It
avers that the appellate court made itself a guardian of an
otherwise intelligent individual well-versed in tactical maneuvers;
that the freedom to enter into contracts is protected by law, and
the courts will not interfere therewith unless the contract is
contrary to law, morals, good customs, public policy or public
order; that there was absolutely no reason for the appellate court
to have found bad faith on its part; and that, at all events,
Valenzona is guilty of laches for his unexplained inaction for six
years.Central to the resolution of the instant controversy is the
determination of whether the questioned last sentence of paragraph
3 is violative of the principle of mutuality of contracts.Mutuality
is one of the characteristics of a contract, its validity or
performance or compliance of which cannot be left to the will of
only one of the parties.10This is enshrined inArticle 1308 of the
New Civil Code,whose underlying principle is explained inGarcia v.
Rita Legarda, Inc.,11viz:Article 1308 of the New Civil Code reads
as follows:"The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them."The above legal provision is a virtual reproduction of
Article 1256 of the old Civil Code but it was so phrased as to
emphasize the principle that the contract must bindbothparties.
This, of course is based firstly, on the principle that obligations
arising from contracts have the force of law between the
contracting parties and secondly,that there must be mutuality
between the parties based on theiressential equalityto which is
repugnant to have one party bound by the contract leaving the other
free therefrom (8 Manresa 556). Its ultimate purpose isto render
void a contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties.x x x (Emphasis, italics and underscoring
supplied)The ultimate purpose of themutuality principleis thus to
nullify a contract containing a condition which makes its
fulfillment or pre-termination
dependentexclusivelyupontheuncontrolledwillof one of the
contracting parties.Not all contracts though which vest to one
party their determination of validity or compliance or the right to
terminate the same are void for being violative of the mutuality
principle. Jurisprudence is replete with instances of cases12where
this Court upheld the legality of contracts which left their
fulfillment or implementation to the will of either of the parties.
In these cases, however, there was a finding of the presence
ofessential equalityof the parties to the contracts, thus
preventing the perpetration of injustice on the weaker party.In the
case at bar, the contract incorporates in paragraph 3 the right of
GF Equity to pre-terminate the contract that "if the coach,in the
sole opinion of the corporation, fails to exhibit sufficient skill
or competitive ability to coach the team, the corporation may
terminate the contract."The assailed condition clearly transgresses
the principle of mutuality of contracts. It leaves the
determination of whether Valenzona failed to exhibit sufficient
skill or competitive ability to coach Alaska teamsolely to the
opinionof GF Equity. Whether Valenzona indeed failed to exhibit the
required skill or competitive ability depended exclusively on the
judgment of GF Equity. In other words, GF Equity was given an
unbridled prerogative to pre-terminate the contract irrespective of
the soundness, fairness or reasonableness, or even lack of basis of
its opinion.To sustain the validity of the assailed paragraph would
open the gate for arbitrary and illegal dismissals, for void
contractual stipulations would be used as justification
therefor.The assailed stipulation being violative of the mutuality
principle underlying Article 1308 of the Civil Code, it is null and
void.The nullity of the stipulation notwithstanding, GF Equity was
not precluded from the right to pre-terminate the contract. The
pre-termination must have legal basis, however, if it is to be
declared justified.GF Equity failed, however, to advance any ground
to justify the pre-termination. It simply invoked the assailed
provision which is null and void.While GF Equitys act of
pre-terminating Valenzonas services cannot be considered willful as
it was based on a stipulation, albeit declared void, it, in doing
so, failed to consider theabuse of rights principleenshrined in
Art. 19 of the Civil Code which provides:Art. 19. Every person
must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe
honesty and good faith.This provision of law sets standards which
must be observedin the exercise of ones rightsas well as in the
performance of its duties, to wit: toact with justice;give every
one his due; andobserve honesty and good faith.Since the
pre-termination of the contract was anchored on an illegal ground,
hence, contrary to law, and GF Equity negligently failed to provide
legal basis for such pre-termination,e.g.that Valenzona breached
the contract by failing to discharge his duties thereunder, GF
Equity failed to exercise in a legitimate manner its right to
pre-terminate the contract, thereby abusing the right of Valenzona
to thus entitle him to damages under Art. 19 in relation to Article
20 of the Civil Code the latter of which provides:Art. 20. Every
person who, contrary to law, willfully or negligently causes damage
to another, shall indemnify the latter for the same.InDe Guzman v.
NLRC,13this Court quoted the following explanation of Tolentino why
it is impermissible to abuse our rights to prejudice others.The
exercise of a right ends when the right disappears, and it
disappears when it is abused, especially to the prejudice of
others. The mask of a right without the spirit of justice which
gives it life is repugnant to the modern concept of social law. It
cannot be said that a person exercises a right when he
unnecessarily prejudices another or offends morals or good customs.
Over and above the specific precepts of positive law are the
supreme norms of justice which the law develops and which are
expressed in three principles:honeste vivere,14alterum non
laedere15andjus suum quique tribuere;16and he who violates them
violates the law. For this reason, it is not permissible to abuse
our rights to prejudice others.The disquisition inGlobe Mackay
Cable and Radio Corporation v. Court of Appeals17is just as
relevant as it is illuminating on the present case. In that case,
this Court declared that even granting that the therein petitioners
might have had the right to dismiss the therein respondent from
work, the abusive manner in which that right was exercised amounted
to a legal wrong for which the petitioners must be held liable.One
of the more notable innovations of the New Civil Code is the
codification of "some basic principles that are to be observed for
the rightful relationship between human beings and for the
stability of the social order." [REPORT ON THE CODE COMMISSION ON
THE PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of
the Code, seeking to remedy the defect of the old Code which merely
stated the effects of the law, but failed to draw out its spirit,
incorporated certain fundamental precepts which were "designed to
indicate certain norms that spring from the fountain of good
conscience" and which were also meant to serve as "guides for human
conduct [that] should run as golden threads through society, to the
end that law may approach its supreme ideal, which is the sway and
dominance of justice"(Id.)Foremost among these principles is that
pronounced in Article 19 which provides:Art. 19. Every person must,
in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and
good faith.This article, known to contain what is commonly referred
to as theprinciple of abuse of rights, sets certain standards which
must be observed not only in the exercise of one's rightsbut also
in the performance of one's duties. These standards are the
following: to act with justice; to give everyone his due; and to
observe honesty and good faith.The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the
norms of human conduct set forth in Article 19 must be observed.A
right, though by itself legal because recognized or granted by law
as such, may nevertheless become the source of some illegality.When
a right is exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to another, a
legal wrong is thereby committed for which the wrongdoer must be
held responsible.But while Article 19 lays down a rule of conduct
for the government of human relations and for the maintenance of
social order, it does not provide a remedy for its violation.
Generally, an action for damages under either Article 20 or Article
21 would be proper.18Emphasis and underscoring supplied).As for GF
Equitys defense of laches on account of Valenzonas invocation of
his right under the contract only after the lapse of six years, the
same fails.Laches has been defined as the failure or neglect for an
unreasonable and unexplained length of time to do that which by
exercising due diligence, could or should have been done earlier,
thus giving rise to a presumption that the party entitled to assert
it either has abandoned or declined to assert it. It is not
concerned with mere lapse of time; the fact of delay, standing
alone, is insufficient to constitute laches.19Laches applies in
equity, whereas prescription applies at law. Our courts are
basically courts of law, not courts of equity. Laches cannot thus
be invoked to evade the enforcement of an existing legal right.
Equity, which has been aptly described as a "justice outside
legality," is applied onlyin the absence of, and never against,
statutory law.Aequetas nunquam contravenit legis.Thus, where the
claim was filed within the statutory period of prescription,
recovery therefor cannot be barred by laches. The doctrine of
laches should never be applied earlier than the expiration of time
limited for the commencement of actions at law,20unless, as a
general rule, inexcusable delay in asserting a right and
acquiescense in existing conditions are proven.21GF Equity has not
proven, nay alleged, these.Under Article 114422of the New Civil
Code, an action upon a written contract must be brought within 10
years from the time the right of action accrues. Since the action
filed by Valenzona is an action for breach upon a written contract,
his filing of the case 6 years from the date his cause of action
arose was well within the prescriptive period, hence, the defense
of laches would not, under the circumstances, lie.Consequently,
Valenzona is entitled to recover actual damages his salary which he
should have received from the time his services were terminated up
to the time the employment contract expired.23As for moral damages
which the appellate court awarded, Article 2220 of the New Civil
Code allows such award to breaches of contract where the defendant
acted fraudulently or in bad faith. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. It contemplates a state of
mind affirmatively operating with furtive design or ill-will.24Bad
faith means a breach of a known duty through some motive of
interest or ill will. It must, however, be substantiated by
evidence. Bad faith under the law cannot be presumed, it must be
established by clear and convincing evidence.As earlier stated,
however, the pre-termination of the contract was not willful as GF
Equity based it on a provision therein which is void. Malice or bad
faith cannot thus be ascribed to GF Equity.The unbroken
jurisprudence is that in breach of contract cases where a party is
not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the
breach of the obligation which the parties had foreseen or could
reasonably have foreseen. The damages, however, do not include
moral damages.25The award by the appellate court of moral damages
must thus be set aside. And so must the award of exemplary damages,
absent a showing that GF Equity acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.26The award to Valenzona
of attorneys fees must remain, however, GF Equity having refused to
pay the balance of Valenzonas salaries to which he was, under the
facts and circumstances of the case, entitled under the contract,
thus compelling him to litigate to protect his
interest.27WHEREFORE, the decision of the Court of Appeals dated
October 14, 2002 is hereby SET ASIDE and another rendered declaring
the assailed provision of the contract NULL AND VOID and ORDERING
petitioner, GF Equity, to pay private respondent, Arturo Valenzona,
actual damages in the amount ofP525,000.00 and attorneys fees in
the amount ofP60,000.00.Costs against petitioner.SO
ORDERED.Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and
Garcia, JJ., concur.
Footnotes1CA Rollo84-92.2Records at 211-213.3Id.at 7-10.4Id.at
86.5Id.at 11-12.6Id. at 1-6.7Videnote 2.8Videnote 1.9Rolloat
6.10Tolentino, Civil Code Of The Philippines, Vol. IV, 1990 ed., p.
410.1121 SCRA 555, 558-560 (1967).12E.g.,Jespajo Realtyv. Court of
Appeals390 SCRA 27, 39 (2002).This Court in this case enunciated
the rule that the express provision in the lease agreement of the
parties that violation of any of the terms and conditions of the
contract shall be sufficient ground for termination thereofby the
lessor, removes the contract from the application of Article
1308.In Taylorv. Uy Tieng Piao, 43 Phil. 873 (1922), this Court
ruled that Article 1256 (now Art. 1308) creates no impediment to
the insertion in a contract for personal service of a resolutory
condition permitting the cancellation of the contractby one of the
parties. Such a stipulation, as can be readily seen, does not make
either the validity of the fulfillment of the contract dependent
upon the will of the party to whom is conceded the privilege of
cancellation; for where the contracting parties have agreed that
such option shall exist, the exercise of the option is as much in
the fulfillment of the contract as any other act which may have
been the subject of agreement. x x x.InAllied Banking Corporation
v. Court of Appeals, 284 SCRA 357, 363-365 (1998), this Court held:
"The fact that such option isbinding only on the lessor and can be
exercised only by the lesseedoes 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 therefore.
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." (Underscoring supplied)13211 SCRA 723, 730
(1992).14To live honorably, creditably, or virtuously.15Not to
injure another.16To render to everyone his own.17176 SCRA 778,
790-791 (1989).18Id.at 783-784.19Chavezv. Bonto-Perez, 242 SCRA 73,
80 (1995).20Imperial Victory Shipping Agencyv. NLRC 200 SCRA 178,
184 (1991).21Z. E. Lotho, Inc.v. Ice & Cold Storage Industries
of the Phils., Inc.3 SCRA 744, 750 (1961);Buenaventura v. David,37
Phil. 435 (1918).22Art. 1144. The following actions must be brought
within 10 years from the time the right of action accrues.(1) Upon
a written contract;(2) Upon an obligation created by law;(3) Upon a
judgment.23In Teknika Skills and Trade Services, Inc.v. NLRC, 212
SCRA 132, 139-140 (1992), this Court held:"The principal cause of
action in private respondents complaint is breach of contract of
employment for a definite period. Having established her case,
which public respondents correctly sustained, she is entitled to
the salary corresponding to the unexpired portion of her contract.
This is not a simple case of illegal dismissal of an employee whose
employment is without a definite period."24Far East Bank and Trust
Companyv. Court of Appeals, 241 SCRA 671, 675 (1995).25Philippine
Air Linesv. Miano, 242 SCRA 235, 240 (1995) and Lufthansa German
Airlinesv. Court of Appeals, 243 SCRA 600, 614-615 (1995). See also
China Airlines, Ltd.v. Court of Appeals, 211 SCRA 897, 905-906
(1992); Saludo, Jr.v. Court of Appeals 207 SCRA 498, 535-536
(1992); China Airlines, Ltd.v. Intermediate Appellate Court, G.R.
No. 73835, January 17, 1989; and Philippine Airlinesv. Court of
Appeals, G.R. No. L-46558, July 31, 1981.26Article 2232 of the New
Civil Code;Salvador v. Court of Appeals, G.R. No. 124899, March 30,
2004.27Article 2208 of the New Civil Code provides:Art. 2208. In
the absence of stipulation, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered,
except:(1) When exemplary damages are awarded:(2)When the
defendants act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;(3)
In criminal cases of malicious prosecution against the
plaintiff;(4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;(5) Where the defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;(6) In actions for legal
support;(7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;(8) In actions for indemnity
under workmens compensation and employers liability laws;(9) In a
separate civil action to recover civil liability arising from a
crime;(10) When at least double judicial costs are awarded;(11) In
any other case where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered.In
all cases, the attorneys fees and expenses of litigation must be
reasonable. (Emphasis supplied)
SECOND DIVISION[G.R. No. 128066. June 19, 2000]JARDINE DAVIES
INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION,respondents.[G.R. No. 128069 June 19, 2000]PURE FOODS
CORPORATION, petitioner, vs.COURT OF APPEALS and FAR EAST MILLS
SUPPLY CORPORATION,respondents.D E C I S I O NBELLOSILLO,J.:This is
rather a simple case for specific performance with damages which
could have been resolved through mediation and conciliation during
its infancy stage had the parties been earnest in expediting the
disposal of this case. They opted however to resort to full court
proceedings and denied themselves the benefits of alternative
dispute resolution, thus making the process more arduous and
long-drawn.The controversy started in 1992 at the height of the
power crisis which the country was then experiencing. To remedy and
curtail further losses due to the series of power failures,
petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to
install two (2) 1500 KW generators in its food processing plant in
San Roque, Marikina City.Sometime in November 1992 a bidding for
the supply and installation of the generators was held. Several
suppliers and dealers were invited to attend a pre-bidding
conference to discuss the conditions, propose scheme and
specifications that would best suit the needs of PUREFOODS. Out of
the eight (8) prospective bidders who attended the pre-bidding
conference, only three (3) bidders, namely, respondent FAR EAST
MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE
POWER submitted bid proposals and gave bid bonds equivalent to 5%
of their respective bids, as required.Thereafter, in a letter dated
12 December 1992 addressed to FEMSCO President Alfonso Po,
PUREFOODS confirmed the award of the contract to FEMSCO
-Gentlemen:This will confirm that Pure Foods Corporation has
awarded to your firm the project: Supply and Installation of two
(2) units of 1500 KW/unit Generator Sets at the Processed Meats
Plant, Bo. San Roque, Marikina, based on your proposal number PC
28-92 dated November 20, 1992, subject to the following basic terms
and conditions:1. Lump sum contract ofP6,137,293.00 (VAT included),
for the supply of materials and labor for the local portion and the
labor for the imported materials, payable by progress billing twice
a month, with ten percent (10%) retention. The retained amount
shall be released thirty (30) days after acceptance of the
completed project and upon posting of Guarantee Bond in an amount
equivalent to twenty percent (20%) of the contract price. The
Guarantee Bond shall be valid for one (1) year from completion and
acceptance of project. The contract price includes future
increase/s in costs of materials and labor;2. The project shall be
undertaken pursuant to the attached specifications. It is
understood that any item required to complete the project, and
those not included in the list of items shall be deemed included
and covered and shall be performed;3. All materials shall be brand
new;4. The project shall commence immediately and must be completed
within twenty (20) working days after the delivery of Generator Set
to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase
price for every day of delay;5. The Contractor shall put up
Performance Bond equivalent to thirty (30%) of the contract price,
and shall procure All Risk Insurance equivalent to the contract
price upon commencement of the project. The All Risk Insurance
Policy shall be endorsed in favor of and shall be delivered to Pure
Foods Corporation;6. Warranty of one (1) year against defective
material and/or workmanship.Once finalized, we shall ask you to
sign the formal contract embodying the foregoing terms and
conditions.Immediately, FEMSCO submitted the required performance
bond in the amount ofP1,841,187.90 and contractors all-risk
insurance policy in the amount ofP6,137,293.00 which PUREFOODS
through its Vice President Benedicto G. Tope acknowledged in a
letter dated 18 December 1992. FEMSCO also made arrangements with
its principal and started the PUREFOODS project by purchasing the
necessary materials. PUREFOODS on the other hand returned FEMSCOs
Bidders Bond in the amount ofP1,000,000.00, as requested.Later,
however, in a letter dated 22 December 1992, PUREFOODS through its
Senior Vice President Teodoro L. Dimayuga unilaterally canceled the
award as "significant factors were uncovered and brought to (their)
attention which dictate (the) cancellation and warrant a total
review and re-bid of (the) project." Consequently, FEMSCO protested
the cancellation of the award and sought a meeting with PUREFOODS.
However, on 26 March 1993, before the matter could be resolved,
PUREFOODS already awarded the project and entered into a contract
with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter
JARDINE), which incidentally was not one of the bidders.FEMSCO thus
wrote PUREFOODS to honor its contract with the former, and to
JARDINE to cease and desist from delivering and installing the two
(2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO
sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its
contract, and JARDINE for its unwarranted interference and
inducement. Trial ensued. After FEMSCO presented its evidence,
JARDINE filed aDemurrer to Evidence.On 27 June 1994 the Regional
Trial Court of Pasig, Br. 68,[1]granted JARDINEsDemurrer to
Evidence. The trial court concluded that "[w]hile it may seem to
the plaintiff that by the actions of the two defendants there is
something underhanded going on, this is all a matter of perception,
and unsupported by hard evidence, mere suspicions and suppositions
would not stand up very well in a court of law."[2]Meanwhile trial
proceeded as regards the case against PUREFOODS.On 28 July 1994 the
trial court rendered a decision ordering PUREFOODS: (a) to
indemnify FEMSCO the sum ofP2,300,000.00 representing the value of
engineering services it rendered; (b) to pay FEMSCO the sum of
US$14,000.00 or its peso equivalent, andP900,000.00 representing
contractor's mark-up on installation work, considering that it
would be impossible to compel PUREFOODS to honor, perform and
fulfill its contractual obligations in view of PUREFOOD's contract
with JARDINE and noting that construction had already started
thereon; (c) to pay attorneys fees in an amount equivalent to 20%
of the total amount due; and, (d) to pay the costs. The trial court
dismissed the counterclaim filed by PUREFOODS for lack of factual
and legal basis.Both FEMSCO and PUREFOODS appealed to the Court of
Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial
court which granted theDemurrer to Evidencefiled by JARDINE
resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court
which ordered it to pay FEMSCO.On 14 August 1996 the Court of
Appeals affirmedin totothe 28 July 1994 Decision of the trial
court.[3]It also reversed the 27 June 1994 Resolution of the lower
court and ordered JARDINE to pay FEMSCO damages for inducing
PUREFOODS to violate the latters contract with FEMSCO. As such,
JARDINE was ordered to pay FEMSCOP2,000,000.00 for moral damages.
In addition, PUREFOODS was also directed to pay FEMSCOP2,000,000.00
as moral damages andP1,000,000.00 as exemplary damages as well as
20% of the total amount due as attorney's fees.On 31 January 1997
the Court of Appeals denied for lack of merit the separate motions
for reconsideration filed by PUREFOODS and JARDINE. Hence, these
two (2) petitions for review filed by PUREFOODS and JARDINE which
were subsequently consolidated.PUREFOODS maintains that the
conclusions of both the trial court and the appellate court are
premised on a misapprehension of facts. It argues that its 12
December 1992 letter to FEMSCO was not an acceptance of the
latter's bid proposal and award of the project but more of a
qualified acceptance constituting a counter-offer which required
FEMSCO's expressconforme.Since PUREFOODS never received
FEMSCOsconforme,PUREFOODS was very well within reason to revoke its
qualified acceptance or counter-offer. Hence, no contract was
perfected between PUREFOODS and FEMSCO. PUREFOODS also contends
that it was never in bad faith when it dealt with FEMSCO. Hence
moral and exemplary damages should not have been
awarded.Corollarily, JARDINE asserts that the records are bereft of
any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to
violate the latters alleged contract with FEMSCO. Moreover, JARDINE
reasons that FEMSCO, an artificial person, is not entitled to moral
damages. But grantingarguendothat the award of moral damages is
proper,P2,000,000.00 is extremely excessive.In the main, these
consolidated cases present two (2) issues: first, whether there
existed a perfected contract between PUREFOODS and FEMSCO; and
second, granting there existed a perfected contract, whether there
is any showing that JARDINE induced or connived with PUREFOODS to
violate the latter's contract with FEMSCO.A contract is defined as
"a juridical convention manifested in legal form, by virtue of
which one or more persons bind themselves in favor of another or
others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do."[4]There can be no contract unless the
following requisites concur: (a) consent of the contracting
parties; (b) object certain which is the subject matter of the
contract; and, (c) cause of the obligation which is
established.[5]A contract binds both contracting parties and has
the force of law between them.Contracts are perfected by mere
consent, upon the acceptance by the offeree of the offer made by
the offeror. From that moment, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.[6]To produce a contract,
the acceptance must not qualify the terms of the offer. However,
the acceptance may be express or implied.[7]For a contract to
arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it
is made known to the offeror.In the instant case, there is no issue
as regards the subject matter of the contract and the cause of the
obligation. The controversy lies in the consent - whether there was
an acceptance of the offer, and if so, if it was communicated,
thereby perfecting the contract.To resolve the dispute, there is a
need to determine what constituted the offer and the acceptance.
Since petitioner PUREFOODS started the process of entering into the
contract by conducting a bidding, Art. 1326 of the Civil Code,
which provides that "[a]dvertisements for bidders are simply
invitations to make proposals," applies. Accordingly, theTerms and
Conditions of the Biddingdisseminated by petitioner PUREFOODS
constitutes the "advertisement" to bid on the project. The bid
proposals or quotations submitted by the prospective suppliers
including respondent FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or rejection of the respective
offers.Quite obviously, the 12 December 1992 letter of petitioner
PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCOs
offer as contemplated by law. The tenor of the letter,i.e.,"This
will confirm that Pure Foods has awarded to your firm (FEMSCO) the
project," could not be more categorical. While the same letter
enumerated certain "basic terms and conditions," these conditions
were imposed on the performance of the obligation rather than on
the perfection of the contract. Thus, the first "condition" was
merely a reiteration of the contract price and billing scheme based
on theTerms and Conditions of Biddingand the bid or previous offer
of respondent FEMSCO. The second and third "conditions" were
nothing more than general statements that all items and materials
including those excluded in the list but necessary to complete the
project shall be deemed included and should be brand new. The
fourth "condition" concerned the completion of the work to be
done,i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The
fifth "condition" had to do with the putting up of a performance
bond and an all-risk insurance, both of which should be given upon
commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic
terms and conditions" were prescriptions on how the obligation was
to be performed and implemented. They were far from being
conditions imposed on the perfection of the contract.In Babasa v.
Court of Appeals[8]we distinguished between a condition imposed on
the perfection of a contract and a condition imposed merely on the
performance of an obligation. While failure to comply with the
first condition results in the failure of a contract, failure to
comply with the second merely gives the other party options and/or
remedies to protect his interests.We thus agree with the conclusion
of respondent appellate court which affirmed the trial court -As
can be inferred from the actual phrase used in the first portion of
the letter, the decision to award the contract has already been
made. The letter only serves as a confirmation of such decision.
Hence, to the Courts mind, there is already an acceptance made of
the offer received by Purefoods. Notwithstanding the terms and
conditions enumerated therein, the offer has been accepted and/or
amplified the details of the terms and conditions contained in the
Terms and Conditions of Bidding given out by Purefoods to
prospective bidders.[9]But even grantingarguendothat the 12
December 1992 letter of petitioner PUREFOODS constituted a
"conditional counter-offer," respondent FEMCO's submission of the
performance bond and contractor's all-risk insurance was an implied
acceptance, if not a clear indication of its acquiescence to, the
"conditional counter-offer," which expressly stated that the
performance bond and the contractor's all-risk insurance should be
given upon the commencement of the contract. Corollarily, the
acknowledgment thereof by petitioner PUREFOODS, not to mention its
return of FEMSCO's bidder's bond, was a concrete manifestation of
its knowledge that respondent FEMSCO indeed consented to the
"conditional counter-offer." After all, as earlier adverted to, an
acceptance may either be express or implied,[10]and this can be
inferred from the contemporaneous and subsequent acts of the
contracting parties.Accordingly, for all intents and purposes, the
contract at that point has been perfected, and respondent
FEMSCO'sconformewould only be a mere surplusage. The discussion of
the price of the project two (2) months after the 12 December 1992
letter can be deemed as nothing more than a pressure being exerted
by petitioner PUREFOODS on respondent FEMSCO to lower the price
even after the contract had been perfected. Indeed from the facts,
it can easily be surmised that petitioner PUREFOODS was haggling
for a lower price even after agreeing to the earlier quotation, and
was threatening to unilaterally cancel the contract, which it
eventually did. Petitioner PUREFOODS also makes an issue out of the
absence of a purchase order (PO). Suffice it to say that purchase
orders or POs do not make or break a contract. Thus, even the tenor
of the subsequent letter of petitioner PUREFOODS,i.e.,"Pure Foods
Corporation is hereby canceling the award to your company of the
project," presupposes that the contract has been perfected. For,
there can be no cancellation if the contract was not perfected in
the first place.Petitioner PUREFOODS also argues that it was never
in bad faith. On the contrary, it believed in good faith that no
such contract was perfected. We are not convinced. We subscribe to
the factual findings and conclusions of the trial court which were
affirmed by the appellate court -Hence, by the unilateral
cancellation of the contract, the defendant (petitioner PURE FOODS)
has acted with bad faith and this was further aggravated by the
subsequent inking of a contract between defendant Purefoods and
erstwhile co-defendant Jardine. It is very evident that Purefoods
thought that by the expedient means of merely writing a letter
would automatically cancel or nullify the existing contract entered
into by both parties after a process of bidding. This, to the
Courts mind, is a flagrant violation of the express provisions of
the law and is contrary to fair and just dealings to which every
man is due.[11]This Court has awarded in the past moral damages to
a corporation whose reputation has been besmirched.[12]In the
instant case, respondent FEMSCO has sufficiently shown that its
reputation was tarnished after it immediately ordered equipment
from its suppliers on account of the urgency of the project, only
to be canceled later. We thus sustain respondent appellate court's
award of moral damages. We however reduce the award
fromP2,000,000.00 toP1,000,000.00, as moral damages are never
intended to enrich the recipient. Likewise, the award of exemplary
damages by way of example for the public good is excessive and
should be reduced toP100,000.00.Petitioner JARDINE maintains on the
other hand that respondent appellate court erred in ordering it to
pay moral damages to respondent FEMSCO as it supposedly induced
PUREFOODS to violate the contract with FEMSCO. We agree. While it
may seem that petitioners PUREFOODS and JARDINE connived to deceive
respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever
that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both
petitioner JARDINE and respondent FEMSCO, and the tender of a lower
quotation by petitioner JARDINE are insufficient to show that
petitioner JARDINE indeed induced petitioner PUREFOODS to violate
its contract with respondent FEMSCO.WHEREFORE, judgment is hereby
rendered as follows:(a) The petition in G.R. No. 128066 is GRANTED.
The assailed Decision of the Court of Appeals reversing the 27 June
1994 resolution of the trial court and ordering petitioner JARDINE
DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY
CORPORATIONP2,000,000.00 as moral damages is REVERSED and SET ASIDE
for insufficiency of evidence; and(b) The petition in G.R. No.
128069 is DENIED. The assailed Decision of the Court of Appeals
ordering petitioner PURE FOODS CORPORATION to pay private
respondent FAR EAST MILLS SUPPLY CORPORATION the sum
ofP2,300,000.00 representing the value of engineering services it
rendered, US$14,000.00 or its peso equivalent, andP900,000.00
representing the contractor's mark-up on installation work, as well
as attorney's fees equivalent to twenty percent (20%) of the total
amount due, is AFFIRMED. In addtion, petitioner PURE FOODS
CORPORATION is ordered to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION moral damages in the amount ofP1,000,000.00 and
exemplary damages in the amount ofP1,000,000.00. Costs against
petitioner.SO ORDERED.Mendoza, Quisumbing, Buena,andDe Leon, Jr.,
JJ.,concur.
[1]Judge Santiago G. Estrella, presiding.[2]Resolution of the
trial court dated 27 June 1994; Rollo of G.R. No. 128066, p.
66.[3]Special Fifteenth Division; Decision penned by Associate
Justice Maximiano C. Asuncion, concurred in by Associate Justices
Godardo A. Jacinto, Chairman, and Celia Lipana-Reyes.[4]Sanchez
Roman 148-149.[5]Art. 1318, Civil Code.[6]See Art. 1315,id.[7]Art.
1320,id.[8]G.R. No. 124045, 21 May 1998, 290 SCRA 532, citing
Romerov.Court of Appeals, G.R. No. 107207, 23 November 1995, 250
SCRA 223, and Lim v. Court of Appeals, G.R. No. 118347, 24 October
1996, 263 SCRA 569.[9]Decision of the appellate court, pp. 7-8;
Decision of the trial court, p. 5.[10]Art. 1320, Civil
Code.[11]Decision of the appellate court, pp. 9-10; Decision of the
trial court, pp. 5-6.[12]Asset Privatization Trust v. Court of
Appeals, G.R. No. 121171, 29 December 1998, 300 SCRA 579; See also
Mambulao Lumber Co.v.Philippine National Bank, No. L-22973, 30
January 1968, 22 SCRA 359.
THIRD DIVISION
[G.R. No. 116896.May 5, 1997]PHILIPPINE NATIONAL CONSTRUCTION
CORPORATIONpetitioner, vs. COURT OF APPEALS, MA. TERESA
S.RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S.
RAYMUNDO, and AMADOR S. RAYMUNDO,respondents.D E C I S I O NDAVIDE,
JR.,J.:This petition for review oncertiorarihas its roots in Civil
Case No. 53444, which was sparked by the petitioner's refusal to
pay the rentals as stipulated in the contract of lease[1]on an
undivided portion of 30,000 square meters of a parcel of land owned
by the private respondents.The lease contract, executed on 18
November 1985, reads in part as follows:1.TERM OF LEASE- This lease
shall be for a period of five (5) years, commencing on the date of
issuance of the industrial clearance by the Ministry of Human
Settlements, renewable for a like or other period at the option of
the LESSEE under the same terms and conditions.2.RATE OF RENT-
LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below.This rate shall be increased yearly by
Five Percent (5%) based on the agreed monthly rate ofP20,000.00 as
follows:Monthly RatePeriod ApplicableP21,000.00Starting on the 2nd
yearP22,000.00Starting on the 3rd yearP23,000.00Starting on the 4th
yearP24,000.00Starting on the 5th year3.TERMS OF PAYMENT- The rent
stipulated in Paragraph 2 above shall be paid yearly in advance by
the LESSEE.The first annual rent in the amount of TWO HUNDRED FORTY
THOUSAND PESOS (P240,000.00), Philippine currency, shall be due and
payable upon the execution of this Agreement and the succeeding
annual rents shall be payable every twelve (12) months thereafter
during the effectivity of this Agreement.4.USE OF LEASED PROPERTY-
It is understood that the Property shall be used by the LESSEE as
the site, grounds and premises of a rock crushing plant and field
office, sleeping quarters and canteen/mess hall.The LESSORS hereby
grant to the LESSEE the right to erect on the Leased Property such
structure(s) and/or improvement(s) necessary for or incidental to
the LESSEE's purposes.. . .11.TERMINATION OF LEASE- This Agreement
may be terminated by mutual agreement of the parties.Upon the
termination or expiration of the period of lease without the same
being renewed, the LESSEE shall vacate the Leased Property at its
expense.On 7 January 1986, petitioner obtained from the Ministry of
Human Settlements a Temporary Use Permit[2]for the proposed rock
crushing project.The permit was to be valid for two years unless
sooner revoked by the Ministry.On 16 January 1986, private
respondents wrote petitioner requesting payment of the first annual
rental in the amount ofP240,000 which was due and payable upon the
execution of the contract.They also assured the latter that they
had already stopped considering the proposals of other aggregates
plants to lease the property because of the existing contract with
petitioner.[3]In its reply-letter, petitioner argued that under
paragraph 1 of the lease contract, payment of rental would commence
on the date of the issuance of an industrial clearance by the
Ministry of Human Settlements, and not from the date of signing of
the contract.It then expressed its intention to terminate the
contract, as it had decided to cancel or discontinue with the rock
crushing project "due to financial, as well as technical,
difficulties."[4]The private respondents refused to accede to
petitioner's request for the pretermination of the lease
contract.They insisted on the performance of petitioner's
obligation and reiterated their demand for the payment of the first
annual rental.[5]Petitioner objected to the claim of the private
respondents and argued that it was "only obligated to pay ... the
amount ofP20,000.00 as rental payments for the one-month period of
lease, counted from 07 January 1986 when the Industrial Permit was
issued by the Ministry of Human Settlements up to 07 February 1986
when the Notice of Termination was served"[6]on private
respondents.On 19 May 1986, the private respondents instituted with
the Regional Trial Court of Pasig an action against petitioner for
Specific Performance with Damages.[7]The case was docketed as Civil
Case No. 53444 at Branch 160 of the said court.After the filing by
petitioner of its Answer with Counterclaim, the case was set for
trial on the merits.What transpired next was summarized by the
trial court in this wise:Plaintiffs rested their case on September
7, 1987 (p. 87 rec.).Defendant asked for postponement of the
reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.)Counsel for
defendant again asked for postponement, through representative, as
he was presently indisposed.The case was reset, intransferable to
September 15 and 26, 1988 (p. 94 rec.)On September 2, 1988, the
office of the Government Corporate Counsel entered its appearance
for defendant (p. 95, rec.) and the original counsel later withdrew
his appearance.On September 15, 1988 the Government Corporate
Counsel asked for postponement, represented by Atty. Elpidio de
Vega, and with his conformity in open court, the hearing was reset,
intransferable to September 26 and October 17, 1988.(p. 98, rec.)On
September 26, 1988 during the hearing, defendant's counsel filed a
motion for postponement (urgent) as he had "sore eyes", a medical
certificate attached.Counsel for plaintiffs objected to the
postponement and the court considered the evidence of the
government terminated or waived.The case was deemed submitted for
decision upon the filing of the memorandum.Plaintiffs filed their
memorandum on October 26, 1988. (p. 111, rec.).On October 18, 1988
in the meantime, the defendant filed a motion for reconsideration
of the order of the court on September 26, 1988 (p. 107, rec.)The
motion was not asked to be set for hearing(p. 110 rec.)There was
also no proof of notice and service to counsel for plaintiff.The
court in the interest of justice set the hearing on the motion on
November 29, 1988.(p. 120, rec.) but despite notice, again
defendant's counsel was absent (p. 120-A, dorsal side, rec.)without
reason.The court reset the motion to December 16, 1988, in the
interest of justice.The motion for reconsideration was denied by
the court.A second motion for reconsideration was filed and counsel
set for hearing the motion on January 19, 1989.During the hearing,
counsel for the government was absent.The motion was deemed
abandoned but the court at any rate, after a review of the
incidents and the grounds relied upon in the earlier motion of
defendant, found no reason to disturb its previous order.[8]On 12
April 1989, the trial court rendered a decision ordering petitioner
to pay the private respondents the amount ofP492,000 which
represented the rentals for two years, with legal interest from 7
January 1986 until the amount was fully paid, plus attorney's fees
in the amount ofP20,000 and costs.[9]Petitioner then appealed to
the Court of Appeals alleging that the trial court erred in
ordering it to pay the private respondent the amount ofP492,000 and
in denying it the right to be heard.Upon the affirmance of the
trial court's decision[10]and the denial of its motion for
reconsideration, petitioner came to this Court ascribing to the
respondent Court of Appeals the same alleged errors and reiterating
their arguments.First.Petitioner invites the attention of this
Court to paragraph 1 of the lease contract, which reads: "This
lease shall be for a period of five (5) years, commencing on the
date of issuance of the industrial clearance by the Ministry of
Human Settlements...."It then submits that the issuance of an
industrial clearance is a suspensive condition without which the
rights under the contract would not be acquired.The Temporary Use
Permit is not the industrial clearance referred to in the contract;
for the said permit requires that a clearance from the National
Production Control Commission be first secured, and besides, there
is a finding in the permit that the proposedproject does not
conform to the Zoning Ordinance of Rodriguez, (formerly Montalban),
Rizal, where the leased property is located.Without the industrial
clearance the lease contract could not become effective and
petitioner could not be compelled to perform its obligation under
the contract.Petitioner is now estopped from claiming that the
Temporary Use Permit was not the industrial clearance contemplated
in the contract.In its letter dated 24 April 1986, petitioner
states:We wish to reiterate PNCC Management's previous stand that
it is only obligated to pay your clients the amount ofP20,000.00 as
rental payments for the one-month period of the lease, counted
from07 January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlementsup to 07 February 1986 when the Notice
of Termination was served on your clients.[11](Underscoring
Supplied).The "Industrial Permit" mentioned in the said letter
could only refer to the Temporary Use Permit issued by the Ministry
of Human Settlements on 7 January 1986.And it can be gleaned from
this letter that petitioner has considered the permit as industrial
clearance; otherwise, petitioner could have simply told the private
respondents that its obligation to pay rentals has not yet arisen
because the Temporary Use Permit is not the industrial clearance
contemplated by them.Instead, petitioner recognized its obligation
to pay rental counted from the date the permit was issued.Also
worth noting is the earlier letter of petitioner; thus:[P]lease be
advised of PNCC Management's decision to cancel or discontinue with
the rock crushing project due to financial as well as technical
difficulties.In view thereof, we would like to terminate our Lease
Contract dated 18 November, 1985.Should you agree to the mutual
termination of our Lease Contract, kindly indicate your conformity
hereto by affixing your signature on the space provided below.May
we likewise request Messrs. Rene, Jose and Antonio, all surnamed
Raymundo and Mrs. Socorro A. Raymundo as Attorney-in-Fact of Amador
S. Raymundo to sign on the spaces indicated below.[12]It can be
deduced from this letter that the suspensive condition - issuance
of industrial clearance - has already been fulfilled and that the
lease contract has become operative.Otherwise, petitioner did not
have to solicit the conformity of the private respondents to the
termination of the contract for the simple reason that no juridical
relation was created because of the non-fulfillment of the
condition.Moreover, the reason of petitioner in discontinuing with
its project and in consequently cancelling the leasecontract was
financial as well as technical difficulties, not the alleged
insufficiency of the Temporary Use Permit.Second.Invoking Article
1266 and the principle ofrebus sic stantibus, petitioner asserts
that it should be released from the obligatory force of the
contract of lease because the purpose of the contract did not
materialize due to unforeseen events and causes beyond its
control,i.e., due to abrupt change in political climate after the
EDSA Revolution andfinancial difficulties.It is a fundamental rule
that contracts, once perfected,bind both contracting parties, and
obligations arising therefrom have the force of law between the
parties and should be complied with in good faith.[13]But the law
recognizes exceptions to the principle of the obligatory force of
contracts.One exception is laid down in Article 1266 of the Civil
Code, which reads: "The debtor in obligations to do shall also be
released when the prestation becomes legally or physically
impossible without the fault of the obligor."Petitioner cannot,
however, successfully take refuge in the said article, since it is
applicable only to obligations "to do", and not to obligations "to
give".[14]An obligation "to do" includes all kinds of work or
service; while an obligation "to give" is a prestation which
consists in the delivery of a movable or an immovable thing in
order to create a real right, or for the use of the recipient, or
for its simple possession, or in order to return it to its
owner.[15]The obligation to pay rentals[16]or deliver the thing in
a contract of lease[17]falls within the prestation to give; hence,
it is not covered within the scope of Article 1266.At any rate, the
unforeseen event and causes mentioned by petitioner are not the
legal or physical impossibilities contemplated in said
article.Besides, petitioner failed to state specifically the
circumstances brought about by the abrupt change in the political
climate in the country except the alleged prevailing uncertainties
in government policies on infrastructure projects.The principle
ofrebus sic stantibus[18]neither fits in with the facts of the
case.Under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to
exist the contract also ceases to exist.[19]This theory is said to
be the basis of Article 1267 of the Civil Code, which provides:ART.
1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.This article, which
enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle ofrebus sic stantibus, which
would endanger the security of contractual relations.The parties to
the contract must be presumed to have assumed the risks of
unfavorable developments.It is therefore only in absolutely
exceptional changes of circumstances that equity demands assistance
for the debtor.[20]In this case, petitionerwants this Court to
believe that the abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition
rendered the performance of the lease contract impractical and
inimical to the corporate survival of the petitioner.This Court
cannot subscribe to this argument.As pointed out by private
respondents:[21]It is a matter of record that petitioner PNCC
entered into a contract with private respondents on November 18,
1985.Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the country has
experienced political upheavals, turmoils, almost daily mass
demonstrations, unprecedented, inflation, peace and order
deterioration, the Aquino trial and many other things that brought
about the hatred of people even against crony corporations.On
November 3, 1985, Pres. Marcos, being interviewed live on U.S.
television announced that there would be a snap election scheduled
for February 7, 1986.On November 18, 1985, notwithstanding the
above,petitioner PNCC entered into the contract of lease with
private respondents with open eyes of the deteriorating conditions
of the country.Anent petitioners alleged poor financial condition,
the same will neither release petitioner from the binding effect of
the contract of lease.As held in Central Bank v. Court of
Appeals,[22]cited by the private respondents, mere pecuniary
inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for
specific performance.With regard to the non-materialization of
petitioners particularpurpose in entering into the contract of
lease,i.e., to use the leased premises as a site of a rock crushing
plant, the same will not invalidate the contract.The cause or
essential purpose in a contract of lease is the use or enjoyment of
a thing.[23]As a general principle, the motive or particular
purpose of a party in entering into a contract does not affect the
validity or existence of the contract; an exception is when the
realization of such motive or particular purpose has been made a
condition upon which the contract is made to depend.[24]The
exception is not apply here.Third.According to petitioner, the
award ofP492,000 representing the rent for two years is excessive,
considering that it did not benefit from the property.Besides, the
temporary permit, conformably with the express provision therein,
was deemed automatically revoked for failure of petitioner to use
the same within one year from the issuance thereof.Hence, the rent
payable should only be for one year.Petitioner cannot be heard to
complain that the award is excessive.The temporary permit was valid
for two years but was automatically revoked because of its non-use
within one year from its issuance.The non-use of the permit and the
non-entry into the property subject of the lease contract were both
imputable to petitioner and cannot, therefore, be taken advantage
of in order to evade or lessen petitioners monetary obligation.The
damage or prejudice to private respondents is beyond dispute.They
unquestionably suffered pecuniary losses because of their inability
to use the leased premises.Thus, in accordance with Article 1659 of
the Civil Code,[25]they are entitled to indemnification for
damages; and the award ofP492,000 is fair and just under the
circumstances of the case.Finally, petitioner submits that the
trial court gravely abused its discretion in denying petitioner the
right to be heard.We disagree.The trial court was in fact liberal
in granting several postponements[26]to petitioner before it deemed
terminated and waived the presentation of evidence in petitioners
behalf.It must be recalled that private respondents rested their
case on 7 September 1987 yet.[27]Almost a year after, or on 10
August 1988 when it was petitioners turn to present evidence,
petitioners counsel asked for postponement of the hearing to 25
August 1988 due to conflict of schedules,[28]and this was
granted.[29]At the rescheduled hearing, petitioners counsel,
through a representative, moved anew for postponement, as he was
allegedly indisposed.[30]The case was then reset intransferable to
September 15 and 26, 1988.[31]On 2 September 1988, the Office of
the Government Corporate Counsel, through Atty. Elpidio J. Vega,
entered its appearance for the petitioner,[32]and later the
original counsel withdrew his appearance.[33]On 15 September 1988,
Atty. Vega requested for postponement to enable him to go over the
records of the case.[34]With his conformity, the hearing was reset
intransferable to September 26 and October 17, 1988.[35]In the
morning of 26 September 1988, the court received Atty. Vegas Urgent
Motion for Postponement on the ground that he was afflicted with
conjunctivitis or sore eyes.[36]This time, private respondents
objected; and upon their motion, the court deemed terminated and
waived the presentation of evidence for the
petitioner.[37]Nevertheless, before the court considered the case
submitted for decision, it required the parties to submit their
respective memoranda within thirty days.[38]But petitioner failed
to file one.Likewise, the court was liberal in respect to
petitioners motion for reconsideration.Notwithstanding the lack of
request for hearing and proof of notice and service to private
respondents, the court set the hearing of the said motion on 29
November 1988.[39]Upon the denial of the said motion for lack of
merit,[40]petitioner filed a second motion for reconsideration.But
during the hearing of the motion on a date selected by him, Atty.
Vega was absent for no reason at all, despite due notice.[41]From
the foregoing narration of procedural antecedents, it cannot be
said that the petitioner was deprived of its day in court.The
essence of due process is simply an opportunity to be heard.[42]To
be heard does not only mean oral arguments in court; one may be
heard also through pleadings.Where opportunity to be heard, either
through oral arguments or pleadings, is accorded, there is no
denial of procedural due process.[43]WHEREFORE, the instant
petition is DENIED and the challenged decision of the Court of
Appeals is AFFIRMEDin toto.No pronouncements as to costs.SO
ORDERED.Narvasa, C.J., (Chairman), Melo, Francisco,andPanganiban,
JJ.,concur.
[1]Exhibit "A," Original Record (OR), 68.[2]Exhibit "C," OR,
77;Rollo, 57.[3]Exhibit "B," OR, 76.[4]Exhibit "D," OR,
78.[5]Exhibit "E,"Id., 80.[6]Exhibit "F,"Id., 81-82.[7]Id.,
1-7.[8]Order of 19 January 1989, OR, 129-130; Decision, 2-3.[9]OR
134-137;Rollo, 53-56.Per Judge Mariano M. Umali.[10]Rollo,
24-31.Per then Associate Justice Justo P. Torres, Jr. (now
Associate Justice of the Supreme Court), with the concurrence of
then Associate Justice Bernardo P. Pardo and Associate Justice
Corona Ibay-Somera.[11]Exhibit "F-1," OR, 82.[12]Exhibit "D,"Id.,
78-79.[13]Articles 1159, 1308, 1315, and 1356 of the Civil
Code.[14]DESIDERIO P. JURADO,Comments and Jurisprudence on
Obligations and Contracts292 (10th revised ed. 1993) (hereafter
JURADO).[15]IV ARTURO M. TOLENTINO,Commentaries and Jurisprudence
on the Civil Code of the Philippines57 (1991) (hereafter IV
TOLENTINO).[16]JURADO, 283.[17]IV TOLENTINO 57.[18]At this point of
affairs; in these circumstances.A name given to a tacit condition,
said to attach to all treaties, that they shall cease to be
obligatory so soon as the state of facts and conditions upon which
they were founded has substantially changed. (Blacks Law
Dictionary, 1139 [5th ed., 1979]).[19]Naga Telephone Co.v. Court of
Appeals, 230 SCRA 351, 365 [1994] citing IV TOLENTINO 347.[20]IV
TOLENTINO 347.[21]Memorandum for the Private Respondents, 17;Rollo,
160.[22]139 SCRA 46 [1985], citing Repidev. Afzelius, 39 Phil. 190
[1918].[23]V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code
of the Philippines, 307 [1995].[24]V TOLENTINO 535[25]It
provides:Art. 1659.If the lessor or the lessee should not comply
with the obligations set forth in Articles 1654 and 1657, the
aggrieved party may ask for rescission of the contract and
indemnification for damages, or only the latter, allowing the
contract to remain in force.[26]Ocampov. Arboleda, 153 SCRA 374,
381 [1987].[27]OR, 87.[28]OR, 89.[29]Id., 91.[30]Id.,
94.[31]Id.[32]Id., 95.[33]Id., 99.[34]Id., 98.[35]Id.[36]Id.,
101.[37]Id., 106.[38]Id.[39]Id., 120.[40]Id., 128.[41]Id.,
127.[42]Rocesv. Aportadera, 243 SCRA 108, 114 [1995];
Vallendev.NLRC, 245 SCRA 662, 666-667 [1995]; Navarro IIIv.
Damasco, 246 SCRA 260, 265 [1995].[43]Mutucv.Court of Appeals, 190
SCRA 43, 49 [1990].
Republic of the PhilippinesSUPREME COURTManilaEN BANCG.R. No.
109125 December 2, 1994ANG YU ASUNCION, ARTHUR GO AND KEH
TIONG,petitioners,vs.THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION,respondents.Antonio M. Albano for
petitioners.Umali, Soriano & Associates for private
respondent.VITUG,J.:Assailed, in this petition for review, is the
decision of the Court of Appeals, dated 04 December 1991, in
CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August
1991 and 27 September 1991, in Civil Case No. 87-41058.The
antecedents are recited in good detail by the appellate court
thusly:On July 29, 1987 a Second Amended Complaint for Specific
Performance was filed by Ang Yu Asuncion and Keh Tiong, et al.,
against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the
Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants described as
Nos. 630-638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been religiously paying
the rental and complying with all the conditions of the lease
contract; that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the same; that
during the negotiations, Bobby Cu Unjieng offered a price of
P6-million while plaintiffs made a counter offer of P5-million;
that plaintiffs thereafter asked the defendants to put their offer
in writing to which request defendants acceded; that in reply to
defendant's letter, plaintiffs wrote them on October 24, 1986
asking that they specify the terms and conditions of the offer to
sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file
the complaint to compel defendants to sell the property to
them.Defendants filed their answer denying the material allegations
of the complaint and interposing a special defense of lack of cause
of action.After the issues were joined, defendants filed a motion
for summary judgment which was granted by the lower court. The
trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree
upon the terms and conditions of the proposed sale, hence, there
was no contract of sale at all. Nonetheless, the lower court ruled
that should the defendants subsequently offer their property for
sale at a price of P11-million or below, plaintiffs will have the
right of first refusal. Thus the dispositive portion of the
decision states:WHEREFORE, judgment is hereby rendered in favor of
the defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale for
a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million
Pesos.SO ORDERED.Aggrieved by the decision, plaintiffs appealed to
this Court inCA-G.R. CV No. 21123. In a decision promulgated on
September 21, 1990 (penned by Justice Segundino G. Chua and
concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower court's
judgment, holding:In resume, there was no meeting of the minds
between the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will
likewise fail as there exists no justifiable ground for its award.
Summary judgment for defendants was properly granted. Courts may
render summary judgment when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a
matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the courta quois legally
justifiable.WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but subject to the
following modification: The courta quoin the aforestated decision
gave the plaintiffs-appellants the right of first refusal only if
the property is sold for a purchase price of Eleven Million pesos
or lower; however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven
Million pesos. No pronouncement as to costs.SO ORDERED.The decision
of this Court was brought to the Supreme Court by petition for
review oncertiorari. The Supreme Court denied the appeal on May 6,
1991 "for insufficiency in form and substances" (Annex H,
Petition).On November 15, 1990, while CA-G.R. CV No. 21123 was
pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the
property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and
conditions:1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full is hereby
acknowledged, the VENDORS hereby sells, transfers and conveys for
and in favor of the VENDEE, his heirs, executors, administrators or
assigns, the above-described property with all the improvements
found therein including all the rights and interest in the said
property free from all liens and encumbrances of whatever nature,
except the pending ejectment proceeding;2. That the VENDEE shall
pay the Documentary Stamp Tax, registration fees for the transfer
of title in his favor and other expenses incidental to the sale of
above-described property including capital gains tax and accrued
real estate taxes.As a consequence of the sale, TCT No.
105254/T-881 in the name of the Cu Unjieng spouses was cancelled
and, in lieu thereof, TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.On July 1, 1991, petitioner as the
new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.On July 16, 1991, the
lessees wrote a reply to petitioner stating that petitioner brought
the property subject to the notice oflis pendensregarding Civil
Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of
the Cu Unjiengs.The lessees filed a Motion for Execution dated
August 27, 1991 of the Decision in Civil Case No. 87-41058 as
modified by the Court of Appeals in CA-G.R. CV No. 21123.On August
30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:Presented before the Court is a Motion for
Execution filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by
Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the Motion for
Execution.The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme Court
upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R.
No.L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6,
1991, stating that the aforesaid modified decision had already
become final and executory.It is the observation of the Court that
this property in dispute was the subject of theNotice of Lis
Pendensand that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the effect that
should the defendants decide to offer the property for sale for a
price of P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right of
first refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos or more.WHEREFORE, defendants are hereby ordered to execute
the necessary Deed of Sale of the property in litigation in favor
of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.All previous transactions involving
the same property notwithstanding the issuance of another title to
Buen Realty Corporation, is hereby set aside as having been
executed in bad faith.SO ORDERED.On September 22, 1991 respondent
Judge issued another order, the dispositive portion of which
reads:WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon Enriquez of
this Court to implement said Writ of Execution ordering the
defendants among others to comply with the aforesaid Order of this
Court within a period of one (1) week from receipt of this Order
and for defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and
set aside the title already issued in favor of Buen Realty
Corporation which was previously executed between the latter and
defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.SO ORDERED.On
the same day, September 27, 1991 the corresponding writ of
execution (Annex C, Petition) was issued.1On 04 December 1991, the
appellate court, on appeal to it by private respondent, set aside
and declared without force and effect the above questioned orders
of the courta quo.In this petition for review oncertiorari,
petitioners contend that Buen Realty can be held bound by the writ
of execution by virtue of the notice oflis pendens, carried over on
TCT No. 195816 issued in the name of Buen Realty, at the time of
the latter's purchase of the property on 15 November 1991 from the
Cu Unjiengs.We affirm the decision of the appellate court.A not too
recent development in real estate transactions is the adoption of
such arrangements as the right of first refusal, a purchase option
and a contract to sell. For ready reference, we might point out
some fundamental precepts that may find some relevance to this
discussion.An obligation is a juridical necessity to give, to do or
not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof,viz: (a)
Thevinculum jurisorjuridical tiewhich is the efficient cause
established by the various sources of obligations (law, contracts,
quasi-contracts, delicts and quasi-delicts); (b) theobjectwhich is
the prestation or conduct; required to be observed (to give, to do
or not to do); and (c) thesubject-personswho, viewed from the
demandability of the obligation, are the active (obligee) and the
passive (obligor) subjects.Among the sources of an obligation is a
contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the
other, to give something or to render some service (Art. 1305,
Civil Code). A contract undergoes various stages that include its
negotiation or preparation, its perfection and, finally, its
consummation.Negotiationcovers the periodfromthe time the
prospective contracting parties indicate interest in the
contracttothe time the contract is concluded (perfected).
Theperfectionof the contract takes place upon the concurrence of
the essential elements thereof. A contract which isconsensualas to
perfection is so established upon a mere meeting of minds, i.e.,
the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge
orcommodatum, is commonly referred to as arealcontract. In
asolemncontract, compliance with certain formalities prescribed by
law, such as in a donation of real property, is essential in order
to make the act valid, the prescribed form being thereby an
essential element thereof. The stage ofconsummationbegins when the
parties perform their respective undertakings under the contract
culminating in the extinguishment thereof.Until the contract is
perfected, it cannot, as an independent source of obligation, serve
as a binding juridical relation. In sales, particularly, to which
the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership
of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides:Art. 1458.
By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefor a price certain in money or
its equivalent.A contract of sale may be absolute or
conditional.When the sale isnot absolutebutconditional, such as in
a "Contract to Sell" where invariably the ownership of the thing
sold is retained until the fulfillment of a positive suspensive
condition (normally, the full payment of the purchase price), the
breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force.2InDignos vs. Court of
Appeals(158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the
contract is devoid of anyprovisothat title is reserved or the right
to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon
the perfection of the contract itself, the failure of the condition
would prevent such perfection.3If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may
either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code).4An unconditionalmutual promiseto buy and sell,
as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may
accordingly be exacted.5Anaccepted unilateral
promisewhichspecifiesthething to be sold and the price to
bepaid,when coupled with a valuable consideration
distinctandseparate from the price, is what may properly be termed
a perfected contract ofoption. This contract is legally binding,
and in sales, it conforms with the second paragraph of Article 1479
of the Civil Code, viz:Art. 1479. . . .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. (1451a)6Observe, however,
that the option isnotthe contract of sale itself.7The optionee has
the right, but not the obligation, to buy. Once the option is
exercised timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their respective
undertakings.8Let us elucidate a little. A negotiation is formally
initiated by an offer. An imperfect promise(policitacion)is merely
an offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or only as
proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the
withdrawal is effective immediately after its manifestation, such
as by its mailing and not necessarily when the offeree learns of
the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is
given to the offeree within which to accept the offer, the
following rules generally govern:(1) If the period is not itself
founded upon or supported by a consideration, the offeror is still
free and has the right to withdraw the offer before its acceptance,
or, if an acceptance has been made, before the offeror's coming to
know of such fact, by communicating that withdrawal to the offeree
(seeArt. 1324, Civil Code; see also Atkins, Kroll & Co. vs.
Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous
decision inSouth Western Sugar vs. Atlantic Gulf, 97 Phil. 249;see
alsoArt. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right
to withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must,
in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and
good faith."(2) If the period has a separate consideration, a
contract of "option" is deemedperfected, and it would be a breach
of that contract to withdraw the offer during the agreed period.
The option, however, is an independent contract by itself, and it
is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If,
in fact, the optioner-offerorwithdraws the offer before its
acceptance(exercise of the option) by the optionee-offeree, the
latter may not sue forspecific performanceon the proposed contract
("object" of the option) since it has failed to reach its own stage
of perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the option. In these cases, care
should be taken of the real nature of theconsiderationgiven, for
if, in fact, it has been intended to be part of the consideration
for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar
instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).In the law on
sales, the so-called "right of first refusal" is an innovative
juridical relation. Needless to point out, it cannot be deemed a
perfected contract of sale under Article 1458 of the Civil Code.
Neither can the right of first refusal, understood in its normal
concept,per sebe brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 13199of the same Code. An option or an offer
would require, among other things,10a clear certainty on both the
object and the cause or consideration of the envisioned contract.
In a right of first refusal, while the object might be made
determinate, the exercise of the right, however, would be dependent
not only on the grant