CONTRACTS CASES Philippines (BSP) compound, where BSP had

contracted a private security agency (AIB) for guard

CASE: Asian Terminal, Inc. vs. Padoson Stainless
services. One of the Mamarils' jeepneys was stolen
Steel Corporation, G.R. No. 211876; June 25, 2018;
after a security guard negligently allowed an
FACTS: Padoson Stainless Steel Corporation
unauthorized person to drive it away.
imported steel coils stored at Asian Terminals, Inc.
HELD: The Supreme Court held that the Boy Scouts
(ATI), which billed Padoson for storage fees after the
of the Philippines (BSP) was not liable for the stolen
Bureau of Customs (BOC) issued a Hold-Order on the
jeepney because the negligence was solely
cargo due to unpaid taxes. Padoson refused to pay,
attributable to the security guards employed by a
claiming the BOC had constructive possession,
third-party agency (AIB Security), not BSP. It ruled
prompting ATI to sue for collection of fees.
that there was no employer-employee relationship
HELD: The Supreme Court held that under the Civil between BSP and the guards, and the contract
Code of the Philippines, particularly the principle of between BSP and the security agency did not create
relativity of contracts (Article 1311), only the parties any obligation in favor of the Mamarils, applying the
to a contract are bound by its terms. Since Asian principle of relativity of contracts under Article 1311
Terminals, Inc. (ATI) and Padoson had a service of the Civil Code. Furthermore, the parking
contract, Padoson remained liable for the storage arrangement was deemed a contract of lease, not
fees—even if the Bureau of Customs (BOC) issued a bailment, so BSP had no legal duty to secure the
Hold-Order—because the BOC was not a party to the vehicle beyond providing parking space.
contract and did not take actual possession of the
goods. This ruling reinforces that a third party (like CASE: Acol v. PCIBank, Jul. 25, 2006;
the government) cannot interfere with or be held FACTS: Manuel C. Acol lost his credit card on April
liable under a private contract, and that a party to a 18, 1987, and promptly reported the loss by phone
contract cannot evade its obligations by invoking the next day and in writing on April 20. Despite this,
the authority or actions of a non-party. unauthorized transactions amounting to ₱76,067.28
were charged to his account before the card issuer
issued a cancellation bulletin, and he was held liable
CASE: Stronghold Insurance v. Stroem, G.R. 204869, under a contract clause requiring written notice and
FACTS: Spouses Rune and Lea Stroem hired Asis-Leif bulletin publication.
& Co., Inc. to construct their house and required the HELD: The Supreme Court held that the contractual
contractor to secure a ₱4.5 million performance clause making the cardholder liable for unauthorized
bond from Stronghold Insurance. When the charges until the lost card is listed in a cancellation
contractor failed to complete the project properly, bulletin is invalid because it is contrary to public
the Stroems demanded payment under the bond, policy and unfairly burdens the consumer. It ruled
but Stronghold refused, claiming the dispute should that Manuel Acol’s prompt reporting of the card loss
go to arbitration. was sufficient to relieve him of liability, and the
HELD: The Supreme Court held that Stronghold issuance of a cancellation bulletin—something
Insurance was liable under the performance bond beyond his control—should not determine his
and could not invoke the arbitration clause in the responsibility. Thus, Acol was absolved from paying
construction contract because it was not a party to the unauthorized charges, and the credit card
that agreement. The Court ruled that the company’s collection claim was dismissed.
performance bond was a separate and independent
contract, and since the dispute involved CASE: Tanay Recreation Center v. Fausto, G.R.
enforcement of that bond—not a construction 140182,
dispute—the RTC had proper jurisdiction, not the FACTS: Tanay Recreation Center & Development
CIAC. Thus, Stronghold was ordered to pay the bond Corp. (TRCDC) leased a property from Catalina
amount to the Stroems. Fausto for 20 years, with a right of first refusal clause
in case the property would be sold. In 1990, Fausto
CASE: Mamaril v. Boy Scouts, G.R. 179382, sold the property to her daughter without notifying
FACTS: Spouses Mamaril paid monthly fees to park TRCDC or offering it the chance to buy, violating the
their jeepneys inside the Boy Scouts of the agreed clause.
HELD: The Supreme Court held that the right of first the injury to Gilchrist was irreparable and not
refusal in the lease contract was valid and adequately compensable by damages.
enforceable, and it applied even if the property was
sold to the lessor’s daughter. The sale to the CASE: Northern Mindanao Industrial Port and
daughter without first offering the property to Services Corporation v. Iligan Cement, G.R. No.
TRCDC was a breach of that right, making the sale 215387
rescissible. The Court ruled that TRCDC did not waive FACTS: Northern Mindanao Industrial Port and
its right by merely seeking lease renewal, and it was Services Corporation (NOMIPSCO) submitted the
entitled to remedies including rescission of the sale, lowest bid for a cargo handling contract with Iligan
damages, and attorney’s fees. Cement Corporation (ICC), but the contract was
instead awarded to another firm, Europort Logistics.
CASE: Riviera Filipina, Inc. v. Court of Appeals, G.R. NOMIPSCO alleged bad faith, claiming its bid was
No. 117355, Apr. 5, 2002; ignored, improperly marked as “no bid,” and that
FACTS: Riviera Filipina, Inc. leased property from ICC secretly preferred new contractors despite
Juan Reyes with a right of first refusal in case of sale. NOMIPSCO’s history as a service provider.
When Reyes later offered to sell the property, HELD: The Supreme Court held that no cause of
Riviera refused to increase its offer beyond ₱5,000 action existed because a bid is merely an offer, and
per square meter, so Reyes sold the land to third ICC was not legally obligated to award the contract
parties at ₱5,300 per square meter without further to the lowest bidder. The Court emphasized that an
notice to Riviera. invitation to bid is not an offer but an invitation to
HELD: The Supreme Court held that Riviera Filipina, make proposals under Article 1326 of the Civil Code.
Inc. forfeited its right of first refusal by refusing to Since NOMIPSCO failed to prove bad faith or abuse
match or negotiate the selling price offered by the of rights, the Court ruled that ICC acted within its
owner, Juan Reyes. The Court ruled that the right of discretion in choosing another contractor and did
first refusal must be exercised in good faith, and not violate any legal or contractual duty.
Riviera's rigid, non-negotiable stance showed it was
not genuinely interested in buying under reasonable CASE: Diampoc v. Buenaventura, G.R. No. 200383;
terms. The sale to third parties was valid, and Reyes Mar. 19, 2018;
had no legal duty to disclose the buyer’s offer once FACTS: Norma Diampoc and her husband lent the
Riviera had already declined to match the price. title to their 174 sqm property to Jessie
Buenaventura as security for a loan, with the
CASE: Gilchrist v. Cuddy, 29 Phil. 542 understanding that no sale would occur and they
FACTS: Cuddy, owner of the motion picture film would receive part of the proceeds. Later, they were
Zigomar, entered into a valid lease agreement to surprised to learn that a notarized deed of sale had
exhibit the film with Gilchrist. Shortly before the transferred half of their property to Buenaventura,
agreed exhibition date, Cuddy breached the deal by which they claimed was executed through fraud and
renting the same film to Espejo and Zaldarriaga for a without their informed consent.
higher price, inducing them as third-parties to HELD: The Supreme Court held that the notarized
interfere with Gilchrist’s contractual rights—despite deed of sale was valid and binding, as it enjoys a
not knowing Gilchrist’s identity, only that a prior presumption of regularity that the Diampocs failed
contract existed to overcome with clear and convincing evidence.
HELD: The Supreme Court held that Espejo and The Court emphasized that the Diampocs, being
Zaldarriaga were liable for inducing a breach of literate and educated, were grossly negligent in
contract, even if they did not know the exact identity signing the document without reading or
of the contracting party, as long as they knew a valid understanding it, and thus were estopped from later
contract existed. It ruled that a third party who claiming fraud. It ruled that mere allegations of
knowingly interferes with a contractual relationship deception, without substantial proof, are insufficient
commits a tort under Article 1902 of the Civil Code. to nullify a contract, especially one duly notarized.
The Court also upheld the issuance of a preliminary
injunction to stop the exhibition of the film, since
CASE: Ong v. BPI Family Savings Bank, G.R. No. CASE: Almeda v. Heirs of Almeda, G.R. No. 194189;
208638, January 24, 2018 Sept. 14, 2017;
FACTS: The Ong spouses secured loans from Bank of FACTS: Spouses Venancio and Leonila Almeda
Southeast Asia (BSA) with a real estate mortgage, executed notarized deeds of sale in 1976 and 1978,
including a ₱5 million credit line, of which ₱2 million transferring parcels of land to their son Ponciano
was never released despite their compliance with Almeda under a power of attorney. Years later, the
conditions. When BSA later merged with BPI Family other heirs challenged the validity of the deeds,
Savings Bank, BPI initiated foreclosure due to alleged alleging forgery, simulation, undue influence, and
default, prompting the Ongs to sue, claiming that lack of consideration.
BSA’s failure to release the full credit line caused HELD: the Supreme Court held that the deeds of sale
their inability to pay and led to business losses. executed in favor of Ponciano Almeda were valid
HELD: The Supreme Court held that the failure of and binding, as the petitioners failed to present clear
BSA (now merged with BPI) to release the and convincing evidence to overcome the
remaining ₱2 million of the approved credit line presumption of regularity attached to notarized
constituted a breach of contract, which justified the documents. The Court found no credible proof of
Ong spouses’ suspension of payments. As BPI forgery, simulation, undue influence, or mental
assumed all rights and obligations of BSA through incapacity of the original owners, noting that mere
the merger, it could not validly foreclose the old age is not sufficient to establish incapacity. As a
mortgage based on a default caused by its result, the petition was denied, and the validity of
predecessor’s nonperformance. The Court ruled in the transactions upheld.
favor of the Ongs, nullified the foreclosure, and
awarded actual, exemplary, and attorney’s fees, CASE: Encarnacion Construction v. Phoenix Ready
affirming that parties must fulfill their obligations Mix Concrete, G.R. No. 225402, Sept. 4, 2017;
under reciprocal contracts before demanding FACTS: Encarnacion Construction & Industrial
compliance from the other side. Corporation (ECIC) entered into contracts with
Phoenix Ready Mix Concrete for the supply of
CASE: G Holdings, Inc. v. Cagayan Electric, G.R. No. concrete, which was delivered and used in
226213; September 27, 2017; constructing a school building. ECIC later refused to
FACTS: Ferrochrome Philippines, Inc. (FPI) owed pay, claiming the concrete was substandard and
Cagayan Electric Power and Light Company, Inc. caused cracks, while Phoenix sued for unpaid
(CEPALCO) over ₱29 million in unpaid electricity bills, deliveries and ECIC counterclaimed for
leading to a judgment against FPI. While the case reconstruction costs.
was pending enforcement, FPI executed a Deed of HELD: The Supreme Court held that Phoenix Ready
Assignment transferring its assets to G. Holdings, Inc. Mix Concrete was entitled to payment, as ECIC failed
(GHI) for ₱50.4 million, which CEPALCO claimed was to timely raise any issue about the quality of the
a simulated transaction meant to defraud creditors. concrete upon delivery, thereby waiving its right to
HELD: The Supreme Court held that the Deed of complain under the waiver clause in their contract.
Assignment between FPI and G. Holdings, Inc. was The Court ruled that the clause was valid and
absolutely simulated and therefore void and enforceable, not a defective contract of adhesion,
inexistent. The Court found strong indicators of since ECIC was a commercial entity familiar with
fraud, including the timing of the deed during such transactions. ECIC’s counterclaim for damages
litigation, the gross disparity in asset value versus was denied due to lack of proof linking the alleged
consideration, and the continued control of assets structural defects to Phoenix’s concrete, and the
by FPI. As a result, GHI acquired no rights, and its delayed complaint (after 48 days) further weakened
claims for damages were dismissed. The Court also its claim.
affirmed that CEPALCO’s counterclaim was properly
filed as a compulsory counterclaim and was not
subject to docket fees. CASE: Tankeh v. Development Bank of the
Philippines, G.R. No. 171428, November 11, 2013;
FACTS: Francisco Tankeh, a Vice President of the
Development Bank of the Philippines (DBP), was
preventively suspended due to administrative without the knowledge or consent of the other
charges and was later not reappointed after his fixed legitimate heirs. Decades later, in 1996, the excluded
term expired. He claimed illegal dismissal, but DBP heirs filed an action for reconveyance and quieting
argued that his term simply ended and there was no of title, claiming the sale was void for lack of consent
obligation to renew his appointment. and thus could not bind their undivided shares.
HELD: The Supreme Court held that there was no HELD: The Supreme Court held that the extrajudicial
illegal dismissal under Philippine law because settlement and sale of the property were void with
Tankeh's employment was based on a fixed-term respect to the shares of the heirs who did not
contract which had expired by its own terms. In consent, and that the action to declare such contract
accordance with Article 1305 of the Civil Code and void is imprescriptible under Article 1410 of the Civil
relevant employment doctrines, this meant the Code. The Court also ruled that laches could not be a
contract naturally ended and DBP had no legal duty ground for dismissal at that stage, since it is a factual
to renew or reappoint him. The Court clarified that issue requiring full trial, and mere delay does not
expiration of a fixed-term contract is not equivalent automatically bar the assertion of ownership rights
to dismissal, and thus does not give rise to any when the contract is void ab initio. NOTE: Under
violation of security of tenure—a protection that Article 1318, absence of consent (and/or cause)
generally applies to regular employees, not officers renders a contract inexistent. Actions to declare
with fixed terms in government-owned and inexistence (void ab initio) do not prescribe pursuant
controlled corporations (GOCCs) like DBP. to Article 1410—making such claims imprescriptible

CASE: Montecillo v. Reynes, G.R. 138018, Jul. 26,

CASE: Malbarosa v. CA, G.R. 125761, Apr. 30, 2003; 2002;
FACTS: Salvador Malbarosa resigned from SEADC FACTS: Ignacia Reynes executed a deed of absolute
and was offered an incentive package through a sale transferring her 448 sq. m. lot to Rido
letter that required him to accept by signing and Montecillo for ₱47,000, payable within one month,
dating it. He did not comply with the required mode but Montecillo failed to pay her the agreed amount.
of acceptance, and after SEADC withdrew the offer, Instead, he paid a third party (Cebu Ice Storage)
he belatedly claimed he had accepted it, leading to a without Reynes' consent, leading her to file a case to
dispute over whether a valid contract was formed. annul the sale and cancel the title issued in
HELD: The Supreme Court held that no valid and Montecillo’s name.
binding contract was perfected because Malbarosa HELD: The Supreme Court held that the contract of
failed to accept the offer in the manner prescribed sale was void ab initio due to lack of consideration
(i.e., by signing and dating the letter), and his alleged and consent, since Montecillo never paid the
acceptance was communicated only after SEADC had purchase price to Reynes and unilaterally diverted
validly withdrawn the offer. Under Philippine payment to a third party without her authority.
contract law, acceptance must be absolute, Under the Civil Code, particularly Articles 1318,
unqualified, and effectively communicated before 1352, and 1240, a contract without a lawful cause
withdrawal, and since Malbarosa did not meet these (consideration) and without mutual agreement on
requirements, there was no perfected contract. payment is inexistent, and payment to someone
NOTE: A valid contract is perfected only upon the other than the creditor does not extinguish the
communication of acceptance; silence or offhand obligation. As a result, the deed of sale and the title
retention does not create consent. When the offeror issued to Montecillo were ordered cancelled.
prescribes an exclusive mode, failure to comply
results in a counter-offer—not acceptance. CASE: Heirs of Romana Ingjug-Tiro v. Casals, G.R.
No. 134718, Aug. 20, 2001, 363 SCRA 435;
FACTS: Several heirs of Mamerto Ingjug executed an
CASE: Gochan v. Heirs of Baba, G.R. 138945, Aug. extrajudicial settlement and sold the entire inherited
19, 2003; property to the Casals family without the knowledge
FACTS: Some heirs of Raymundo Baba executed an or consent of the other legitimate heirs. Decades
extrajudicial settlement in 1966 and sold the entire later, the excluded heirs discovered the sale and
conjugal property (Lot 3537) to Gochan Realty filed an action to annul the transaction and recover
their shares, claiming they were defrauded and had did not apply, since the original owners took timely
no knowledge of the sale until years after it action after discovering the fraud, and there was no
occurred. showing of undue delay or prejudice that would
HELD: The Supreme Court held that the sale and justify barring their claim.
extrajudicial settlement were void ab initio with
respect to the heirs who did not give their consent, CASE: Laudico v. Arias, 43 Phil. 270.
and therefore, the action to declare their inexistence FACTS: Vicente Arias offered to lease property to
is imprescriptible under Article 1410 of the Civil Mamerto Laudico and sent a draft lease agreement,
Code. The Court further ruled that laches does not which Laudico later accepted by letter on March 6,
apply to bar an action that seeks to declare a 1919, at 2:53 p.m. However, earlier that same day at
contract void, since equity cannot override a 11:25 a.m., Arias had already sent a letter revoking
statutory right, and mere delay in asserting the offer, which reached Laudico before Arias
ownership does not validate an otherwise void received Laudico’s acceptance.
transaction. HELD: The Supreme Court held that no contract of
lease was perfected because the revocation of the
offer was communicated and received by Laudico
CASE: Delos Reyes v. CA, 372 Phil. 522 (1999); before Arias received the acceptance. Under Article
FACTS: Claudio and Lydia Delos Reyes entered into 1262 of the Civil Code, when acceptance is made by
an oral agreement with Renato Gabriel to buy a letter, it only becomes effective upon receipt by the
portion of land, paid ₱90,000, and built a house on offeror, and since Arias validly withdrew the offer
it, believing Renato had authority to sell as the son before that happened, there was no meeting of the
of the registered owner, Daluyong Gabriel. Later, minds, and thus no binding contract.
Daluyong contested the sale, claiming Renato had no
written authority to sell the property, and sought to CASE: Gallardo v. IAC, G.R. L-67742, Oct. 29, 1987;
recover possession and nullify the transaction. FACTS: Meliton Gallardo and Teresa Villanueva
HELD: The Supreme Court held that the oral contract claimed they bought a 81,300 sqm parcel in Cavinti,
of sale was null and void ab initio because Renato Laguna from their uncle, Pedro Villanueva, in 1937
Gabriel had no written authority to sell real property through a private, unnotarized deed of sale written
on behalf of his father, as required under Article in Tagalog and allegedly signed by him. During World
1874 of the Civil Code. Since Renato was neither the War II, land registry records were destroyed; the
owner nor a duly authorized agent, no valid sale petitioners presented the deed and obtained a
occurred, and ownership could not be transferred. reconstituted Transfer Certificate of Title (TCT) in
The Court ruled that estoppel does not apply in this their names, which was later challenged by
case, as one cannot transfer ownership he does not Villanueva's heirs via an adverse claim and court
have, and therefore, the Delos Reyes spouses were action.
ordered to vacate the land, though they were HELD: The Supreme Court held that the private,
entitled to a refund of the ₱90,000 they had paid. unnotarized deed of sale relied upon by Gallardo
and Villanueva was void and produced no legal
effect, because under Section 127 of the Land
CASE: Lacsamana v. CA, 351 Phil. 526 (1998); Registration Act (Act No. 496) and Article 1358 of the
FACTS: A parcel of land was fraudulently transferred Civil Code, a valid transfer of registered land must be
in 1971 to a fictitious person named Nestor executed in a public instrument (i.e., notarized). The
Lacsamana through a fabricated deed of sale. Upon Court further ruled that ownership over registered
discovering the fraud, the original owners filed an land cannot be acquired through prescription or
action in 1983 to annul the transfer and recover adverse possession, as Torrens title is indefeasible
ownership of the property. and cannot be defeated by mere possession, no
HELD: The Supreme Court held that the action to matter how long. Therefore, the reconstituted title
annul the fraudulent transfer was not barred by issued to the petitioners based on a void sale was
prescription, because it sought to declare a void also null and void.
contract, which under Article 1410 of the Civil Code
is imprescriptible. The Court also ruled that laches
 estoppel did not apply since MATUSCO had not
relied on the error to its detriment.
CASE: Dauden-Hernaez v. Delos Angeles, G.R. L-
27010, Apr. 30, 1969
FACTS: Marlene Dauden-Hernaez, a film actress,
sued Hollywood Far East Productions, Inc. and its CASE: Naga Telephone v. CA, G.R. No. 107112 Feb.
president to recover ₱14,700 as unpaid 24, 1994
compensation for her appearance in two films under FACTS: Naga Telephone Company (NATELCO) and
an oral agreement. The trial court dismissed her CASURECO II entered into a 1977 agreement
complaint, reasoning that the contract was allowing NATELCO to use CASURECO II’s electric
unenforceable for not being in writing, despite posts in exchange for ten free telephone lines. Over
involving a service exceeding ₱500. time, NATELCO expanded its use to over 1,400 posts
HELD: The Supreme Court held that the oral contract without additional compensation, prompting
was valid and enforceable, even if it involved an CASURECO II to challenge the fairness of the
amount exceeding ₱500 and was not in writing. The arrangement due to the increased burden and lack
Court clarified that Article 1358 of the Civil Code of updated terms.
merely requires certain contracts to be in writing for HELD: The Supreme Court held that although the
purposes of convenience or evidence, but does not 1977 agreement was valid, Article 1267 of the Civil
affect their validity or enforceability. Since the Code applied because the contract had become
essential elements of a contract—consent, object, manifestly inequitable due to unforeseen changes—
and cause—were present, the agreement was specifically, the substantial increase in NATELCO’s
binding, and the trial court erred in dismissing the use of CASURECO II’s electric posts without
case based solely on lack of written form. additional compensation. The Court ruled that
CASURECO II could no longer be compelled to
CASE: Makati Tuscany Condominium v. Multi- perform under such unjust terms, and that NATELCO
Realty must pay reasonable rental fees for the continued
Development Corporation, G.R. No. 185530, April use of the posts starting from 1989, when the
18, 2018; dispute arose. Additionally, the Court clarified that
FACTS: Multi-Realty Development Corporation built the clause making the contract effective “while
Makati Tuscany Condominium and intended to NATELCO needs the service” was not a purely
retain ownership of 98 parking slots for future sale, potestative condition and did not invalidate the
but due to an error, the Master Deed and Deed of agreement.
Transfer mistakenly included all parking slots as part
of the condominium's common areas transferred to CASE: Reyes v. BANCOM Dev’t. Corp., G.R. No.
Makati Tuscany Condominium Corporation 190286, Jan. 11, 2018;
(MATUSCO). Years later, when MATUSCO began FACTS: Marbella Realty, Inc. obtained loans from
asserting ownership over the disputed slots, Multi- Bancom Development Corporation through
Realty filed a case for reformation of the documents promissory notes, which were guaranteed by the
to reflect their true agreement. Reyes Group under a Continuing Guaranty. When
HELD: The Supreme Court held that the Master Deed Marbella defaulted and failed to pay replacement
and Deed of Transfer should be reformed to reflect notes, Bancom filed a collection case against both
the true intention of the parties—that Multi-Realty Marbella and the Reyes Group for the unpaid
Development Corporation retained ownership of the obligations.
98 parking slots. The Court ruled that reformation HELD: The Supreme Court held that the Reyes Group
was proper under Article 1359 of the Civil Code was solidarily liable with Marbella Realty, Inc. under
because a mutual mistake had caused the the Continuing Guaranty they executed, which
documents to misrepresent the parties' agreement. unconditionally bound them to pay the obligations in
It also held that the action was not barred by case of default. The Court further ruled that the
prescription, as the right to sue accrued only when revocation of Bancom’s corporate registration did
MATUSCO first denied Multi-Realty’s claim, and not abate the collection case, because under the
Corporation Code, a dissolved corporation retains
legal capacity for three years to wind up its affairs, arbitration clause in the construction contract, as it
and its directors serve as trustees to pursue or was not a party to that agreement—arbitration
defend legal actions on its behalf. Thus, Bancom’s binds only those who expressly consent to it.
claim remained enforceable, and the Reyes Group
was ordered to pay the debt with interest and costs.

CASE: WERR Corp. V. Highlands Prime, G.R. 187543, CASE: Republic v. David, G.R. No. 155634, Aug. 16,
Feb. 8, 2017; 2004;
FACTS: Highlands Prime, Inc. contracted WERR FACTS: Jerry V. David, an SSS employee, acquired a
Corporation to construct 54 residential units for a house and lot through the SSS Employees’ Housing
fixed price, with a completion deadline and a 10% Loan Program under a conditional sale agreement
retention clause for performance security. WERR requiring him or his immediate family to actually
failed to complete the project on time and only occupy the property. However, investigations
reached 93.18% completion, prompting HPI to showed that David allowed third parties to reside
terminate the contract, withhold the retention there instead, prompting SSS to rescind the contract
money, and claim liquidated damages, while WERR and seek repossession.
sought payment of its retained balance through HELD: The Supreme Court held that Jerry V. David
arbitration. violated the terms of the Deed of Conditional Sale by
HELD: The Supreme Court held that WERR failing to personally occupy the property or have his
Corporation was liable for liquidated damages due immediate family do so, instead allowing third
to its failure to complete the project within the parties to live there. Because this breached a key
agreed timeframe and its inability to prove condition of the contract, the Court ruled that the
substantial performance (at least 95% completion), SSS was entitled to rescind the agreement, recover
which is the industry threshold to excuse delay. The the property, and refund David’s payments with
Court upheld the deduction of post-termination compensation for any substantial improvements he
supplier payments from the retention fund, finding made.
them proper and consistent with contract terms.
Additionally, it affirmed the CIAC and Court of CASE: Equatorial Realty v. Mayfair Theatre, G.R. No.
Appeals’ findings that no attorney’s fees or litigation 106063, Nov. 21, 1996;
expenses were due, and arbitration costs should be FACTS: Mayfair Theater, Inc. leased property from
equally shared, as both parties partially prevailed. Carmelo & Bauermann, Inc. under a contract that
included a right of first refusal, requiring Carmelo to
CASE: Stronghold v. Stroem, G.R. No. 204869, Jan. offer the property to Mayfair before selling it to any
21, 2015 third party. Despite this, Carmelo sold the property
FACTS: Spouses Rune and Lea Stroem contracted to Equatorial Realty without notifying Mayfair,
Asis-Leif & Co., Inc. to construct their house and prompting Mayfair to file an action for specific
required it to post a ₱4.5 million performance bond performance and rescission of the sale.
from Stronghold Insurance in case of default. When HELD: The Supreme Court held that the clause in the
Asis-Leif failed to complete the project, the Stroems lease agreement was a valid and enforceable right of
rescinded the contract and sued Stronghold, first refusal, not a mere option, and that Carmelo &
demanding payment under the bond as only Bauermann, Inc. violated this right by selling the
Stronghold was served with summons. property to Equatorial Realty without first offering it
HELD: The Supreme Court held that Stronghold to Mayfair Theater, Inc. The Court ruled that both
Insurance was directly liable under the performance Carmelo and Equatorial acted in bad faith, and the
bond, as it guaranteed the contractor’s obligation sale to Equatorial was rescinded. Mayfair was
and agreed to be solidarily bound with Asis-Leif in granted the right to purchase the property at the
case of default. The Court emphasized that a surety same price paid by Equatorial (₱11.3 million),
contract creates a direct and unconditional upholding the lessee’s preferential right and
obligation, making Stronghold accountable enforcing the principle that contractual rights must
regardless of the contractor’s absence in court. be respected.
Additionally, Stronghold could not invoke the
CASE: Bocaling v. Bonnevie, G.R. No. 86150, Mar. 2,
1992;
FACTS: Africa Valdez de Reynoso leased property to
the Bonnevie brothers, granting them a right of first
priority to purchase the land should she decide to
sell it. Despite this, Reynoso sold the property to
Guzman, Bocaling & Co. under more favorable terms
without properly offering it to the Bonnevies,
prompting them to file an action for rescission of the
sale.
HELD: The Supreme Court held that the sale of the
property to Guzman, Bocaling & Co. was rescissible,
not void, because it violated the Bonnevie brothers’
contractual right of first priority to purchase. The
Court found that Guzman, Bocaling & Co. was not a
buyer in good faith, as it had actual knowledge of
the Bonnevies’ lease and purchase rights. As a result,
the sale was ordered rescinded, and Reynoso was
directed to sell the property to the Bonnevies under
the same terms, along with awards of temperate
and exemplary damages and attorney’s fees to the
Bonnevies.

CASE: Air France v. CA, G.R. No. L-57339, Dec. 29,

1983
FACTS: The Gana family purchased nine open-dated
airline tickets from Air France, valid until May 8,
1971, but failed to use them before the expiration
date. When they attempted to travel afterward
using tickets that had been improperly revalidated
by their travel agent, Air France refused to honor
them, forcing the family to buy new tickets at higher
fares.
HELD: The Supreme Court held that Air France did
not breach the contract of carriage, as the tickets
were clearly expired and the airline was under no
obligation to honor them beyond their validity
period. The Court ruled that the unauthorized
revalidation by the Ganas' travel agent did not bind
Air France, and since the passengers were duly
notified of fare rules and expiration terms, their
claim for moral damages had no basis. Thus, the
airline acted within its rights, and the complaint was
dismissed.