#1 STAR PAPER vs.

SIMBOL
487 SCRA 228

FACTS: Petitioner was the employer of the respondents. Under the policy of Star Paper the
employees are:
1. New applicants will not be allowed to be hired if in case he/she has a relative, up to the 3rd
degree of relationship, already employed by the company.
2. In case of two of our employees (singles, one male and another female) developed a friendly
relationship during the course of their employment and then decided to get married, one of them
should resign to preserve the policy stated above.
Respondents Comia and Simbol both got married to their fellow employees. Estrella on
the other hand had a relationship with a co-employee resulting to her pregnancy on the belief that
such was separated. The respondents allege that they were forced to resign as a result of the
implementation of the said assailed company policy.
The Labor Arbiter and the NLRC ruled in favor of petitioner. The decision was appealed
to the Court of Appeals which reversed the decision.
ISSUE: Whether the prohibition to marry in the contract of employment is valid
HELD: It is significant to note that in the case at bar, respondents were hired after they were
found fit for the job, but were asked to resign when they married a co-employee. Petitioners
failed to show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit,
then an employee of the Repacking Section, could be detrimental to its business operations.
Neither did petitioners explain how this detriment will happen in the case of Wilfreda Comia,
then a Production Helper in the Selecting Department, who married Howard Comia, then a
helper in the cutter-machine. The policy is premised on the mere fear that employees married to
each other will be less efficient. If we uphold the questioned rule without valid justification, the
employer can create policies based on an unproven presumption of a perceived danger at the
expense of an employees right to security of tenure.
Petitioners contend that their policy will apply only when one employee marries a coemployee, but they are free to marry persons other than co-employees. The questioned policy
may not facially violate Article 136 of the Labor Code but it creates a disproportionate effect and
under the disparate impact theory, the only way it could pass judicial scrutiny is a showing that it
is reasonable despite the discriminatory, albeit disproportionate, effect. The failure of petitioners
to prove a legitimate business concern in imposing the questioned policy cannot prejudice the
employees right to be free from arbitrary discrimination based upon stereotypes of married
persons working together in one company.
Lastly, the absence of a statute expressly prohibiting marital discrimination in our
jurisdiction cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast
and extensive that we cannot prudently draw inferences from the legislatures silence that
married persons are not protected under our Constitution and declare valid a policy based on a
prejudice or stereotype. Thus, for failure of petitioners to present undisputed proof of a
reasonable business necessity, we rule that the questioned policy is an invalid exercise of
management prerogative. Corollary, the issue as to whether respondents Simbol and Comia
resigned voluntarily has become moot and academic.
In the case of Estrella, the petitioner failed to adduce proof to justify her dismissal.
Hence, the Court ruled that it was illegal.

#2 PASCUAL vs. RAMOS

384 SCRA 105
FACTS:
Ramos alleged that on 3 June 1987, for and in consideration of P150,000, the Spouses
Pascual executed in his favor a Deed of Absolute Sale with Right to Repurchase over two parcels
of land and the improvements thereon located in Bambang, Bulacan, Bulacan. This document
was annotated at the back of the title. The Pascuals did not exercise their right to repurchase the
property within the stipulated one-year period; hence, Ramos prayed that the title or ownership
over the subject parcels of land and improvements thereon be consolidated in his favor.
In their Answer, the Pascuals admitted having signed the Deed of Absolute Sale with
Right to Repurchase for a consideration of P150, 000 but averred that what the parties had
actually agreed upon and entered into was a real estate mortgage. They further alleged that there
was no agreement limiting the period within which to exercise the right to repurchase and that
they had even overpaid Ramos. The trial court found that the transaction between the parties was
actually a loan in the amount of P150,000, the payment of which was secured by a mortgage of
the property covered by TCT No. 305626. It also found that the Pascuals had made payments in
the total sum of P344,000, and that with interest at 7% per annum, they had overpaid the loan by
P141,500. Accordingly, in its Decision of 15 March 1995 the trial court ruled in favor of the
defendants. The Pascuals interposed the following defenses: (a) the trial court had no jurisdiction
over the subject or nature of the petition; (b) Ramos had no legal capacity to sue; (c) the cause of
action, if any, was barred by the statute of limitations; (d) the petition stated no cause of action;
(e) the claim or demand set forth in Ramoss pleading had been paid, waived, abandoned, or
otherwise extinguished; and (f) Ramos has not complied with the required confrontation and
conciliation before the barangay.
The Court of Appeals affirmed in toto the trial courts Orders of 5 June 1995 and 7
September 1995.
ISSUE: Whether or not the contract entered into is a contract of loan.

RULING:
The Pascuals are actually raising as issue the validity of the stipulated interest rate. It
must be stressed that they never raised as a defense or as basis for their counterclaim the nullity
of the stipulated interest. While overpayment was alleged in the Answer, no ultimate facts which
constituted the basis of the overpayment was alleged. In their pre-trial brief, the Pascuals made a
long list of issues, but not one of them touched on the validity of the stipulated interest rate.
Their own evidence clearly shows that they have agreed on, and have in fact paid interest at, the
rate of 7% per month.
After the trial court sustained petitioners claim that their agreement with RAMOS was
actually a loan with real estate mortgage, the Pascuals should not be allowed to turn their back on
the stipulation in that agreement to pay interest at the rate of 7% per month. The Pascuals should
accept not only the favorable aspect of the courts declaration that the document is actually an
equitable mortgage but also the necessary consequence of such declaration, that is, that interest
on the loan as stipulated by the parties in that same document should be paid. Besides, when
Ramos moved for a reconsideration of the 15 March 1995 Decision of the trial court pointing out
that the interest rate to be used should be 7% per month, the Pascuals never lifted a finger to
oppose the claim. Admittedly, in their Motion for Reconsideration of the Order of 5 June 1995,
the Pascuals argued that the interest rate, whether it be 5% or 7%, is exorbitant, unconscionable,
unreasonable, usurious and inequitable. However, in their Appellants Brief, the only argument
raised by the Pascuals was that Ramoss petition did not contain a prayer for general relief and,

hence, the trial court had no basis for ordering them to pay Ramos P511,000 representing the
principal and unpaid interest. It was only in their motion for the reconsideration of the decision
of the Court of Appeals that the Pascuals made an issue of the interest rate and prayed for its
reduction to 12% per annum.
It is a basic principle in civil law that parties are bound by the stipulations in the contracts
voluntarily entered into by them. Parties are free to stipulate terms and conditions which they
deem convenient provided they are not contrary to law, morals, good customs, public order, or
public policy.
The interest rate of 7% per month was voluntarily agreed upon by Ramos and the
Pascuals. There is nothing from the records and, in fact, there is no allegation showing that
petitioners were victims of fraud when they entered into the agreement with Ramos. Neither is
there a showing that in their contractual relations with Ramos, the Pascuals were at a
disadvantage on account of their moral dependence, ignorance, mental weakness, tender age or
other handicap, which would entitle them to the vigilant protection of the courts as mandated by
Article 24 of the Civil Code.

#3 ARWOOD INDUSTRIES, INC. vs. DM CONSUNJI, INC.

394 SCRA 11
FACTS:
Petitioner and respondent, as owner and contractor, respectively, entered into a civil,
structural and architectural works Agreement dated February 6, 1989 for the construction of
petitioners Westwood condominium at No. 23 Eisenhower St., Greenhills, San Juan, Metro
Manila. The contract price for the condominium project aggregated P20, 800,000.00.
Despite the completion of the condominium project, the amount of P962, 434.78 remain
unpaid by petitioner. Repeated demands by respondent for petitioner to pay went unheeded.
Thus on August 13, 1993, respondent as plaintiff in a civil case filed its complaint for the
recovery of the balance of the contract price and for damages against petitioner.
Respondent specifically prayed for the payment of the: (a) amount of P962, 434.78 with
interest of 2% per month or a fraction thereof, from November 1990 up to the time of payment;
(b) the amount of P250,000 as Attorneys fees and litigation expenses; (c) amount of
P150,000.00 as exemplary damages; and (d)cost of suit.
On appeal, the Court of Appeals affirmed the lower courts decision with modification
ISSUE: Whether or not the imposition of two percent interest on the amount adjudged is proper.
RULING: Yes. It must be noted that the agreement provided the contractor, respondent in this case,
two (2) options in case of delay in monthly payments, to wit: a) suspend works on the project
until payment is remitted by the owner or continue the work but the owner shall be required to
pay interest at a rate of two (2) percent per month or a fraction thereof. Evidently, respondent
chose the latter option, as the condominium project was in fact already completed. Since the
agreement stands as the law between the parties, the court cannot ignore the existence of such
provision providing for a penalty for every months delay.

#6 TIU vs. PLATINUM PLANS PHILIPPINES

G.R. No. 163512, February 28, 2007
FACTS:
Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the
pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing
Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President
and Territorial Operations Head in charge of its Hong Kong and Asean operations. The parties
executed a contract of employment valid for five years.
On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became
the Vice-President for Sales of Professional Pension Plans, Inc., a corporation engaged also in
the pre-need industry.
Consequently, respondent sued petitioner for damages before the RTC of Pasig City,
Branch 261. Respondent alleged, among others, that petitioners employment with Professional
Pension Plans, Inc. violated the non-involvement clause in her contract of employment. In
upholding the validity of the non-involvement clause, the trial court ruled that a contract in
restraint of trade is valid provided that there is a limitation upon either time or place. In the case
of the pre-need industry, the trial court found the two-year restriction to be valid and reasonable.
On appeal, the Court of Appeals affirmed the trial courts ruling. It reasoned that petitioner
entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only
what was expressly stipulated in the contract, but also all its consequences that were not against
good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting nonemployment for two years was valid and enforceable considering the nature of respondents
business.
ISSUE:
Whether the Court of Appeals erred in sustaining the validity of the non-involvement
clause
HELD:
In this case, the non-involvement clause has a time limit: two years from the time
petitioners employment with respondent ends. It is also limited as to trade, since it only
prohibits petitioner from engaging in any pre-need business akin to respondents. More
significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations
Head in charge of respondents Hongkong and Asean operations, she had been privy to
confidential and highly sensitive marketing strategies of respondents business. To allow her to
engage in a rival business soon after she leaves would make respondents trade secrets
vulnerable especially in a highly competitive marketing environment. In sum, The Court finds
the non-involvement clause not contrary to public welfare and not greater than is necessary to
afford a fair and reasonable protection to respondent. Hence the restraint is valid and such
stipulation prevails.

#7 AVON COSMETICS vs. LUNA

511 SCRA 376
FACTS:
The present petition stemmed from a complaint[3] dated 1 December 1988, filed by
herein respondent Luna alleging, inter alia that she began working for Beautifont, Inc. in 1972,
first as a franchise dealer and then a year later, as a Supervisor. Sometime in 1978, Avon
Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and
operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said
successor company. Aside from her work as a supervisor, respondent Luna also acted as a makeup artist of petitioner Avons Theatrical Promotions Group, for which she received a per diem
for each theatrical performance.
The contract was that:
The Company agrees:
1) To allow the Supervisor to purchase at wholesale the products of the Company.
The Supervisor agrees:
1) To purchase products from the Company exclusively for resale and to be responsible for
obtaining all permits and licenses required to sell the products on retail.
The Company and the Supervisor mutually agree:
1) That this agreement in no way makes the Supervisor an employee or agent of the
Company, therefore, the Supervisor has no authority to bind the Company in any contracts with
other parties.
2) That the Supervisor is an independent retailer/dealer insofar as the Company is
concerned, and shall have the sole discretion to determine where and how products purchased
from the Company will be sold. However, the Supervisor shall not sell such products to stores,
supermarkets or to any entity or person who sells things at a fixed place of business.
3) That this agreement supersedes any agreement/s between the Company and the
Supervisor.
4) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company.
5) Either party may terminate this agreement at will, with or without cause, at any time
upon notice to the other.
Later, respondent Luna entered into the sales force of Sandre Philippines which caused
her termination for the alleged violation of the terms of the contract. The trial court ruled in favor
of Luna that the contract was contrary to public policy thus the dismissal was not proper. The
Court of Appeals affirmed the decision, hence this petition.
ISSUE:
Whether the Court of Appeals erred in ruling that the Supervisors Agreement was
invalid for being contrary to public policy
Whether there was subversion of the autonomy of contracts by the lower courts
HELD:
Agreements in violation of orden pblico must be considered as those which conflict with

law, whether properly, strictly and wholly a public law (derecho) or whether a law of the person,
but law which in certain respects affects the interest of society. Plainly put, public policy is that
principle of the law which holds that no subject or citizen can lawfully do that which has a
tendency to be injurious to the public or against the public good. As applied to contracts, in the
absence of express legislation or constitutional prohibition, a court, in order to declare a contract
void as against public policy, must find that the contract as to the consideration or thing to be
done, has a tendency to injure the public, is against the public good, or contravenes some
established interests of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether of personal liability or of private
property.
From another perspective, the main objection to exclusive dealing is its tendency to
foreclose existing competitors or new entrants from competition in the covered portion of the
relevant market during the term of the agreement. Only those arrangements whose probable
effect is to foreclose competition in a substantial share of the line of commerce affected can be
considered as void for being against public policy. The foreclosure effect, if any, depends on the
market share involved. The relevant market for this purpose includes the full range of selling
opportunities reasonably open to rivals, namely, all the product and geographic sales they may
readily compete for, using easily convertible plants and marketing organizations.
Applying the preceding principles to the case at bar, there is nothing invalid or contrary
to public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity
clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products
other than those manufactured by petitioner Avon.
Having held that the exclusivity clause as embodied in paragraph 5 of the Supervisors
Agreement is valid and not against public policy, we now pass to a consideration of respondent
Lunas objections to the validity of her termination as provided for under paragraph 6 of the
Supervisors Agreement giving petitioner Avon the right to terminate or cancel such contract.
The paragraph 6 or the termination clause therein expressly provides that:
The Company and the Supervisor mutually agree:
6) Either party may terminate this agreement at will, with or without cause, at any time
upon notice to the other.
In the case at bar, the termination clause of the Supervisors Agreement clearly provides
for two ways of terminating and/or canceling the contract. One mode does not exclude the other.
The contract provided that it can be terminated or cancelled for cause, it also stated that it can be
terminated without cause, both at any time and after written notice. Thus, whether or not the
termination or cancellation of the Supervisors Agreement was for cause, is immaterial. The
only requirement is that of notice to the other party. When petitioner Avon chose to terminate the
contract, for cause, respondent Luna was duly notified thereof.
Worth stressing is that the right to unilaterally terminate or cancel the Supervisors
Agreement with or without cause is equally available to respondent Luna, subject to the same
notice requirement. Obviously, no advantage is taken against each other by the contracting
parties.
Hence, the petition was granted.

#8 DEL CASTILLO vs. RICHMOND

45 PHIL. REPORTS 679
FACTS:
The plaintiff alleges that the provisions and conditions contained in
the third paragraph of their contract constitute an illegal and
unreasonable restriction upon his liberty to contract, are contrary to
public policy, and are unnecessary in order to constitute a just and
reasonable protection to the defendant; and asked that the same be
declared null and void and of no effect. The defendant interposed a
general and special defense. In his special defense he alleges that during
the time the plaintiff was in the defendant's employ he obtained
knowledge of his trade and professional secrets and came to know and
became acquainted and established friendly relations with his customers
so that to now annul the contract and permit plaintiff to establish a
competing drugstore in the town of Legaspi, as plaintiff has announced
his intention to do, would be extremely prejudicial to defendant's
interest." The defendant further, in an amended answer, alleges that this
action not having been brought within four years from the time the
contract referred to in the complaint was executed, the same has
prescribed.
ISSUE:
Whether the contract is valid and the autonomy of contracts be
upheld
HELD:
Considering the nature of the business in which the defendant is
engaged, in relation with the limitation placed upon the plaintiff both as to
time and place, The Court is of the opinion, and so decide, that such
limitation is legal and reasonable and not contrary to public policy,
otherwise, the autonomy of the contract will be subverted.

#9 Cui v. Arellano (1961)

Facts:
Cui was enrolled in the College of Law of Arellano University up to the first
semester of his senior year. All the time, he was awarded scholarship grants for
scholastic merit. He was made to sign the following contract or agreement: In
consideration of the scholarship granted to me by the University, I hereby waive
my right to transfer to another school without having refunded to the University
(defendant) the equivalent of my scholarship cash. His semestral tuition was
returned to him at the end of the semester. Capistrano, his uncle was the dean
and legal counsel of the said college. But he left to accept the deanship and
chancellorship of the College of Law of Abad Santos University. Cui could not
pay his tuition in Arellano University, and so he enrolled for the last semester
of his fourth year law in Abad Santos University where he subsequently
graduated. For his application to take the bar exam, he requested his transcript
of records from Arellano University. The latter refused. Cui was asked to pay
back the tuition refunded to him, totaling P1,033.87. He paid the amount under
protest. The Bureau of Private Schools previously issued a memorandum on the
subject of scholarship. It upheld Cuis right to secure his transcript of records
without being required to refund.
Issue: WON the contract signed by Cui, waiving his right to transfer to another
school without refunding to Arellano the equivalent of scholarships, is valid
Held:
No. The stipulation in question is contrary to public policy, and hence, null and
void. The memorandum issued merely incorporates a sound principle of public
policy. Scholarships are awarded in recognition of merit, and not to keep
outstanding students in school to bolster its prestige. The practice of awarding
scholarships to attract students and keep them in school is not good customs
nor has it received some kind of social and practical confirmation. Scholarships
are granted not to attract and to keep brilliant students in school for
propaganda, but to reward merit or help gifted students in whom society has
an established interest.

#11 Sanchez v. Rigos [June 14, 1972]

Ponente: C.J. Concepcion
Facts: On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos
executed an instrument entitled Option to Purchase where the latter
agreed, promised and committed...to sell to the former a parcel of land
situated in San Jose, Nueva Ecija for P1, 510. It was further stipulated that the
option shall be deemed terminated if Sanchez fails to exercise his right to buy
the property within 2 years. Within the same period, Sanchez attempted to
make several tenders of payment of P1, 510 to no avail because Rigos rejected
the same. Because of this, the former deposited said amount with the CFI of
Nueva Ecija and commenced an action for specific performance and damages
against the latter. The CFI rendered judgment for Sanchez.
Issue: Whether or not the offer can still be withdrawn after Sanchez notified
Rigos of his acceptance of the option within the period agreed upon
Held: No.
Ratio: If the option is given without a consideration, it is a mere offer of a
contract of sale which is not binding until accepted. If, however, acceptance is
made before a withdrawal, it constitutes a binding contract of sale even though
the option was not supported by sufficient consideration.
The option did not impose upon Sanchez the obligation to purchase her
property. The instrument is not a contract to buy and sell; it is a mere option as
evinced by the title of the document itself.
Moreover, Art. 1324, CC provides the general rule regarding offer and
acceptance that, when the offerrer gives to the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance except
when the option is founded upon consideration. In other words, if the option is
given without a consideration, it is a mere offer of a contract of sale which is
not binding until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale even though the option
was not supported by a sufficient consideration. The concurrence of both
actsthe offer and the acceptancegenerates a contract if there was none
existing before.
Antonio, J., concurring: While the law permits the offeror to withdraw the
offer at any time before acceptance even before the period has expired, the
offeror cannot exercise this right in an arbitrary or capricious manner for the
reason that a contrary view would remove the stability and security of business
transactions. Since Sanchez had offered P1, 510 before any withdrawal from
the contract has been made by Rigos, a bilateral reciprocal contract to sell and
to buy was generated.
Ang Yu v. CA [Supra]

"Article 1324
#11c Sanchez vs. Rigos 45 SCRA 368
Facts: On 3 April 1961, Nicolas Sanchez and Severina Rigos executed an instrument, entitled
Option to Purchase, whereby Mrs. Rigos agreed, promised and committed . . . to sell to Sanchez,
for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of
San Jose, province of Nueva Ecija, and more particularly described in TCT NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall be deemed
terminated and elapsed, if Sanchez shall fail to exercise his right to buy the property within the
stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by Sanchez
within said period, were rejected by Mrs. Rigos, on 12 March 1963, the former deposited said
amount with the CFI Nueva Ecija and commenced against the latter the present action, for specific
performance and damages. On 11 February 1964, after the filing of defendants answer, both parties,
assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on
28 February 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the
sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs.
Rigos was, likewise, sentenced to pay P200.00, as attorneys fees, and the costs. Hence, the appeal
by Mrs. Rigos to the Court of Appeals, which case was the certified by the latter court to the
Supreme Court upon the ground that it involves a question purely of law.
Issue: Whether or not the contract is valid and binding.
Held: Option without consideration is a mere offer of a contract of sale, which is not binding until
accepted
If the option is given without a consideration, it is a mere offer of a contract of sale, which is not
binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding
contract of sale, even though the option was not supported by a sufficient consideration. . . . (77
Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.) It can be taken
for granted that the option contract was not valid for lack of consideration. But it was, at least, an
offer to sell, which was accepted by latter, and of the acceptance the offerer had knowledge before
said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at
all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code;
Zayco vs. Serra, 44 Phil. 331.) In other words, since there may be no valid contract without a cause
or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to
sell which, if accepted, results in a perfected contract of sale."

"Article 1176
#12 Hill vs. Veloso 31 Phil. 160
Facts: It is believed that defendant Maxima Ch. Veloso is indebted to Damasa Ricablanca, her
sister-in-law and widow of Potenciano Ch. Veloso, with the amount of P8, 000. It is also
believed that Domingo Franco, defendants son-in-law and minor child of Ricablanca, had the
latter sign a blank document for the purpose of compelling her to execute a document
regarding the acknowledgment of the abovementioned debt in his behalf. The guardian of
Franco, named Levering, according to the latter, is the one who compelled the defendant to
sign the said document on Francos behalf. Later on, the document that was signed by the
defendant turned out to be a document containing a different tenor which states that the
defendant had executed the said document for value of the goods that they received in La
Cooperative Filipina which they (the defendant and her husband) are bound to pay jointly and
severally to Michael and Co., for the sum of P6, 319.33. Levering, as the guardian of the
minor children of Damasa Ricablanca, commenced proceedings against the defendant for the
recovery of the sum of P8, 000. The defendant, in turn, pray for the annulment of the contract
with Michael and Co. on the grounds of deceit and error committed by her son-in-law Franco
who was then a deceased.
Issue: Whether or not the alleged deceit caused by Franco may be a ground for the annulment
of the contract.
Ruling: The judgment is against defendant.
The deceit, in order that it may annul the consent, must be that which the law defines as a
cause. According to Article 1269 of the Civil Code (now Article 1338 of the New Civil Code),
there is deceit, when by words or insidious machinations on the part of one of the contracting
parties, the other is induced to execute a contract which without them he would not have
made. Domingo Franco is not one of the contracting parties who may have deceitfully
induced the other contracting party, Michael and Co., to execute the contract. The one and the
other contracting parties, to whom the law refers, are the active and the passive subjects of the
obligation, the party of the first part and the party of the second part who execute the contract.
The active subject and the party of the first part of the promissory note in question is Michael and Co., and the passive subject and the
party of the second part are Maxima Ch. Veloso and
Domingo Franco; two, or they be more, who are one single subject, one single party. Domingo
Franco is not one contracting party with regard to Maxima Ch. Veloso as the other contracting
party. They both are but one single contracting party in contractual relation with, Michael and
Co. Domingo Franco, like any other person who might have been able to induce Maxima Ch.
Veloso to act in the manner she is said to have done, under the influence of deceit, would be
for this purpose, but a third person. There would then be not deceit on the part of the one of
the contracting parties exercised upon the other contracting party, but deceit practiced by a
third person.

#15 METROPOLITAN MANILA DEVELOPMENT AUTHORITY, VS. JANCOM

ENVIRONMENTAL CORPORATION
G.R. No. 147465 January 30, 2002
FACTS:
The Philippine Government under the Ramos Administration, and
through the Metro Manila Development Authority (MMDA) Chairman, and
the Cabinet Officer for Regional Development-National Capital Region
(CORD-NCR), entered into a contract with respondent JANCOM, on wasteto-energy projects for the waste disposal sites in San Mateo, Rizal and
Carmona, Cavite under the build-operate-transfer (BOT) scheme.
However, before President Ramos could have signed the said contract,
there was a change in the Administration and EXECOM. Said change caused the
passage of the law, the Clean Air Act, prohibiting the incineration of garbage and
thus, against the contents of said contract. The Philippine Government, through
the MMDA Chairman, declared said contract inexistent for several reasons.
Herein respondent filed a suit against petitioner. The Regional Trial Court ruled
in favor of the respondent. Instead of filing an appeal to the decision, petitioner
filed a writ of certiorari on the Court of Appeals, which the latter granted. The
Regional Trial Court declared its decision final and executory, for which the
petitioner appealed to the CA, which the CA denied such appeal and affirming
RTCs decision.
ISSUE:
Whether or not a valid contract is existing between herein petitioner
and respondent.
RULING:
Under Article 1305 of the Civil Code, a contract 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. A
contract
undergoes three distinct stages- preparation or negotiation, its perfection,
and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and
ends at the moment of agreement of the parties. The perfection or birth
of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof. Article 1315 of
the Civil Code, provides that a contract is perfected by mere consent.
Consent, on the other hand, is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the
contract. In the case at bar, the signing and execution of the contract by
the parties clearly show that, as between the parties, there was a
concurrence of offer and acceptance with respect to the material details
of the contract, thereby giving rise to the perfection of the contract. The
execution and signing of the contract is not disputed by the parties. As
the Court of Appeals aptly held: Contrary to petitioners insistence that
there was no perfected contract, the meeting of the offer and acceptance
upon the thing and the cause, which are to constitute the contract (Arts.
1315 and 1319, New Civil Code), is borne out by the records.
Admittedly, when petitioners accepted private respondents bid
proposal (offer), there was, in effect, a meeting of the minds upon the
object (waste management project) and the cause (BOT scheme). Hence,
the perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi,

the Supreme Court held that the effect of an unqualified acceptance of

the offer or proposal of the bidder is to perfect a contract, upon notice of
the award to the bidder.
In fact, in asserting that there is no valid and binding contract
between the parties, MMDA can only allege that there was no valid notice
of award; that the contract does not bear the signature of the President of
the Philippines; and that the conditions precedent specified in the
contract were not complied with.
In asserting that the notice of award to JANCOM is not a proper
notice of award, MMDA points to the Implementing Rules and Regulations
of Republic Act No. 6957, otherwise known as the BOT Law, which require
that i) prior to the notice of award, an Investment Coordinating
Committee clearance must first be obtained; and ii) the notice of award
indicate the time within which the awardee shall submit the prescribed
performance security, proof of commitment of equity contributions and
indications of financing resources.
Admittedly, the notice of award has not complied with these
requirements. However, the defect was cured by the subsequent
execution of the contract entered into and signed by authorized
representatives of the parties; hence, it may not be gainsaid that there is
a perfected contract existing between the parties giving to them certain
rights and obligations (conditions precedents) in accordance with the
terms and conditions thereof. We borrow the words of the Court of
Appeals:
Petitioners belabor the point that there was no valid notice of award
as to constitute acceptance of private respondents offer. They maintain
that former MMDA Chairman Oretas letter to JANCOM EC dated February
27, 1997 cannot be considered as a valid notice of award as it does not
comply with the rules implementing Rep. Act No. 6957, as amended. The
argument is untenable.

#18 Cagayan Fishing Development (CFD) vs. Sandiko 65 Phil.223

Facts: Manual Tabora is a registered owner of four parcels of land in barrio Linao, Appari. He mortgage in favor of PNB for P 8,000
and signed mortgage for additional P 7,000. And mortgaged favor of Severina Buzon to whom he is indebted for P 2900.
Tabora executed a public document by virtue of which said lands wore sold to plaintiff company ( CFD) subject to mortgages in favor
of PNB and Buzon and will not transfer the title until the later has fully paid its debt. A year after the plaintiffs incorporation on
October 22,1930, a board resolution was issued authorizing its president to sell the land to Teodoro Sandiko for P42, 000 and
evidenced by deed of sale.
The defendant having failed to pay the sum stated in promissory notes, brought a courts action in Court of First Instance in Manila
which this court absolved the defendant. Plaintiff filed a motion but was denied, hence, this appeal was made.
PNB threatened Tabora to foreclose its mortgage, Tabora approached the defendant Sandiko and made him assume the payment of
Taboras indebtedness. The promissory note was made payable to the plaintiff company so that the lands may not be attached by
Taboras creditors.
Issue: Whether or not there was a valid contract by transfer of four land by the plaintiff to the defendant?
Held: The transfer from Tabora to CFD was subject to condition precedent. Part of the mortgage and that this condition not having
compared with by CFD, the transfer was null and void because at the time was effected, the plaintiff corporation is non-existent. The
transfer was effected May 31, 1930 and articles of incorporation was effected later October 22, 1930. In this case, it cannot be denied
that the plaintiff was not yet incorporated when it entered into the contract of sale. Not even a de facto corp. not being in legal
existence, it did not possess juridical capacity to enter into the contact.

Article 1306
#19 Gabriel vs. Monte de Piedad 71 Phil.497
Facts: Petitioner Leoncio Gabriel was employed as appraiser of jewels in the pawnshop of Monte Piedad defendant from 1913-1933
on December 13, 1932, he executed a chattel mortgage to secure the part of deficiencies which resulted from his erroneous appraisal
of jewels amounting to P 4,679.07 with interest and promised to pay the appellee the sum of P300 amount until the P 4,679.07 with
interest is fully paid. And this was registered to become the a fore mentioned sum less what the balance of P11,345.75 and in case of
default the Chattel Mortgage was based upon all non existing subtract matter as consideration and C.M was null and void. The lower
court rendered judgment of lower court. Hence, this petition for review by certiorari.
Issue: Whether or not there was a valid contract made?
Held: There is a valid contract in this case. A contract is to be judged by its characteristics and courts will look to the substance. In
the case at bar, the object of contract does not in anyway militate against public good. Neither does it contravene the policy of law as
interest of society. There is sufficient consideration in this contract. A pre-existing admitted liability is a good consideration for a
promise. It has satisfactorily established that it was executed voluntarily by the latter to guarantee the deficiencies resulting from his
erroneous appraisals of the jewels. The exception to this rule is where the inadequacy by is gross as to amount to fraud, oppression /of
undue influence as when statutes requires the consideration to be inadequate. We are not convinced that the instant case falls within
the exception. Therefore, the petition is dismissed.

#20 Jimeno vs. Gacilago 14 Phil. 16

Facts: On the 7th of June, 1905, Manuel Jimeno, Clara Jimeno, Emilio Jimeno, Filomena Jimeno and her husband, Salvador Trono,
filed a complaint with the Court of First Instance of Occidental Negros, alleging: that by means of a public instrument which was
attached to the complaint a contract for partition of property had been entered into between them and Lope Gacilogo; that the
defendant, Gacilagao, is in possession of all the property described in the instrument of partition, but, with the exception of two
cocoanuts groves described in clause 7 thereof, he refuses to deliver to the plaintiffs, as per agreement, the portion that pertains to
them; that the defendant, Gacilago, refuses to comply with the terms of the said instrument, under the pretext that clause 2 thereof is
slightly obscure, the obscurity being due to erroneous data furnished by the defendant himself, consisting in the inverted placing of the
words north and south used in said clause; and that, by reason of this act of the defendant, the plaintiffs have suffered loss and
damages to the extent of P600, wherefore they prayed that judgment be entered against the defendant compelling him to comply with
the terms of the attached instrument of partition, and that the plaintiffs be allowed damages, plus cost.
The defendant answered in writing to the complaint and denied each and every one of its allegations with the exception of those
contained in paragraphs 1 and 2 of the same, which he admitted as true and, as a defense, he alleged that the defendant had strictly
complied with everything stipulated in the public instrument of partition to which the complaint referred.
Issue: Whether in the preparation of the second clause of the instrument of partition of certain undivided property, dated August 29,
1904, an error was committed in the designation of the portions divided up with relation to two of the cardinal points of the horizon,
and the true situation of the estate that is the subject of the division.
Held: It appears stipulated in clause 2 of the said instrument that the hacienda Filomena de Payao should be divided into three parts
between the plaintiffs and the defendant; the northern and southern part of the estate to go to the defendant, Gacilago, and the central
part of the same, lying between the said hacienda road and the old road to the pueblo of Soledad, both of which run parallel from east
to west through the central part of the property, to go to the plaintiffs.
Allegations not duly substantiated by the record cannot prevail against the validity and efficiency of the stipulations contained in
authentic documents, whether they be public or private, inasmuch as whatever may have been agreed to in a contract, where it does
not violate the prohibitive provisions of the law or public morals, is binding upon the contracting parties. (Arts. 1254 and 1278, Civil
Code.) When the terms of a written contract are clear and leave no doubt, the literal sense of its stipulations should be observed, and
there should not be understood as included therein things and cases different from those with regard to which the persons interested
intended to contract. (Arts. 1281 and 1283, Civil Code.)
From the foregoing it is inferred that there was no just or lawful reason for failure to comply with the stipulations of the written
contract in question; therefore, the party that failed to fulfill the agreement is responsible for the loss occasioned to the other party, and
is obliged to indemnify him in accordance with the law and the principles of justice.
Petition granted.

#21 Ferrazzini vs. Gsel 34 Phil.493

Facts: This action was brought to recover damages for an alleged wrongful discharge of the plaintiff,
who had been employed by the defendant for an indefinite time to work in the latter's industrial
enterprises in the city of Manila. The defendant admitted that he discharged the plaintiff without
giving him the "written advice of six months in advance" as provided in the contract, but alleged that
the discharge was lawful on account of absence, unfaithfulness, and disobedience of orders.
The defendant sought affirmative relief for a further alleged breach of the contract by the plaintiff
after his discharge. According to the defendant, this act of the plaintiff was a technical violation of
the provisions of the contract wherein he expressly agreed and obligated himself "not to enter into
the employment of any enterprise in the Philippine Islands, whatever, save and except after obtaining
special written permission therefor" from the defendant.
The lower court ruled in favor of the plaintiff, hence, this appeal from the defendant.
Issue: Whether or not the provisions of the contract not to enter into the employment of any
enterprise in the Philippine Islands, whatever, save and except after obtaining special written
permission therefor" from the defendant are valid and binding upon the plaintiff?
Held: The Supreme Court ruled that he contract under consideration, tested by the law, rules and
principles, is clearly one in undue or unreasonable restraint of trade and therefore agains
public
policy. It is limited as to time and space but not as to trade. It is not necessary for the protection of
the defendant, as this is provided for in another part of the clause. It would force the plaintiff to leave
the Philippine Islands in order to obtain a livelihood in case the defendant declined to give him the
written permission to work elsewhere in this country.

#22 De Los Reyes vs. Alojado 16 Phil. 499

FACTS: On or about January 22, 1905, Veronica Alojado received, as a loan, from Benito de los
Reyes that the sum P67 .60, for the purpose of paying a debt she owed to Olimpia Zaballa. It was agreed between Alojado and Reyes
that the debtor should remain as a servant in the house and in the
service of her creditor, without any renumeration whatever, until she should find someone who
would furnish her with the said sum where with to repeat the loan. The defendant, Veronica Alojado,
afterwards left the house of the plaintiff, on March 12, 1906, without having paid him her debt, nor
did she do so at any subsequent date, notwithstanding his demands. The plaintiff, therefore, filed suit
against Veronica Alojado to recover the said sum or, in a contrary case, to compel her to return to his
service. The trial court rendered judgment whereby he sentenced the defendant to pay to the plaintiff
the sum claimed and declared that, in case the debtor should be insolvent, she should be obliged to
fulfill the agreement between her and the plaintiff, which was reversed in favor of defendant. Hence,
this appeal.
The defendant appealed from the said judgment, denying all the allegations of the complaint and
alleged that, although she had left the plaintiff's service, it was because the latter had paid her no sum
whatever for the services she had rendered in his house.
ISSUE: Whether or not the agreement entered into by both parties is valid.
HELD: The duty to pay the said sum, as well as that of P11.97 delivered to the defendant in small
amounts during the time that she was in the plaintiff's house, is unquestionable, inasmuch as it is a
positive debt demandable of the defendant by her creditor. (Arts. 1754, 1170, Civil Code.) However,
the reason alleged by the plaintiff as a basis for the loan is untenable, to wit, that the defendant was
obliged to render service in his house as a servant without remuneration whatever and to remain
therein so long as she had not paid her debt, inasmuch as this condition is contrary to law and
morality. (Art. 1255, Civil Code.) Domestic services are always to be remunerated, and no
agreement may subsist in law in which it is stipulated that any domestic service shall be absolutely
gratuitous, unless it be admitted that slavery may be established in this country through a covenant
entered into between the interested parties.
Petition dismissed

#23 Puig vs. Sellner 45 Phil. 286

FACTS: This litigation arose from the non-payment of a promissory note signed by the defendants, which is as follows:
On or before July 12, 1921, we promise to pay jointly and severally at Manila to the order of D. Andres Puig or his general attorneyin-fact, D. Ramon Salinas, the sum of forty seven thousand pesos (P47,000), Philippine currency, which we received on this date from
said Mr. Salinas by way of loan at 10 per cent per annum; and we hereby guarantee our said obligation with five hundred seventy
(570) preferred shares of the Manila Improvement Co. of the face value of one hundred pesos (P100) each, which will be issued within
fifteen (15) days in the name of Mr. Puig, who shall hold them until we fulfill this obligation. In case we fail to make payment on July
12, 1921, the shares pledged shall become the property of D. Andres Puig. Manila, July 12, 1920.
The Honorable Geo. R. Harvey, judge, rendered a carefully prepared decision, sentencing the defendants Geo. C. Sellner and B. A.
Green to pay the plaintiff jointly and severally and ordering, moreover, in the event that the defendants should fail to pay the full
amount of the judgment within three (3) months from the date thereof, that the sheriff of this city proceed to sell the five hundred
seventy (570) shares pledged at public auction to the highest bidder. From this judgment the defendants have appealed, and in their
brief they assign seven errors, which, to our mind, can be reduced to one, namely, that numbered 2, which is as follows:
The trial court erred in not holding that the condition contained in the note, to wit, "In case we fail to make payment on July 12, 1921,
the shares pledged shall become the property of D. Andres Puig," was valid and binding against the plaintiff, as well as against the
defendants.
ISSUE: Whether or not such stipulation of appropriating pledged shares by creditor to himself in case of non-compliance by debtor is
valid.
HELD: The question as to the validity of a stipulation, such as that now before us, was already decided by the supreme court of Spain
in the negative.
The law does not permit the making of stipulations contrary to law, morals or public order, one of which stipulations would be,
according to the general language of article 1859, that wherein it is agreed that the debtor (creditor) may appropriate the thing pledged,
as if it were sold to him, by the mere lapse of the term of the contract of loan, and said stipulation being void, under article 1884 of
said Code.
The creditor has no right to appropriate to himself the personal property and chattels pledged, nor he can he make payment by himself
and to himself for his own credit with the value of the said property. However, the vice of nullity which vitiates the additional
agreement entered into by the contracting parties authorizing the creditor to appropriate the property and effects pledged in payment of
his credit does not affect substantially the principal contract of chattel mortgage with regard to its validity and efficacy.
Judgment appealed from is affirmed.

#24 Tiangco vs. CFI 98 SCRA 26

FACTS: Under date of June 13, 1980, a Joint Motion for Judgment on Compromise Agreement was filed by the petitioners and
respondents.
JOINT MOTION FOR JUDGMENT ON COMPROMISE
AGREEMENT
Now come the petitioners and respondents in the above-entitled cases, assisted by respective counsel and before the Honorable
Supreme Court respectfully allege that they have arrived at and agreed to a settlement of their controversy in Civil Case No. Q-25435
entitled 'Dominador N. Venegas vs. Salvador T. Tiangco. et al., CFI of Rizal Quezon City, Branch IX, which gave rise to and resulted
in the above-entitled cases before the Honorable Supreme Court, to wit:
1. That the parties have agreed to ask the Honorable Supreme Court to dismiss or order the Hon. Trial Court to dismiss Civil Case No.
Q-25435 entitled 'Dominador N. Venegas vs. Salvador T. Tiangco, et al., CFI of Rizal Quezon City, Branch IX, including an claiming,
counterclaim and interventions arising from and by reason of said case, and likewise to dismiss the above two said cases on the ground
that the same have become moot and academic, which dismissals of Civil Case Q-25435 CFI of Rizal Quezon City, Branch IX and the
said above two cases shall be with prejudice;
2. That the parties have also agreed that the Lions Clubs in District 301-D which have been placed in status quo will reorganize
themselves in accordance with the Constitution and By-Laws of Lions International after said clubs shall have withdrawn and/or
dismissed all cases filed by them, their officers or members against Lions International and/or its representatives, which cases are
pending or on appeal in the courts.
3. That after the dismissal of the above-entitled cases by the Supreme Court and all other cases pending in the courts as listed above
and the reorganizations, the parties have agreed to request Lions International to authorize as soon as possible the holding of elections
to choose the District Governor of District 301-D for the fiscal year 1980-81 in accordance with the Constitution and By-Laws of
Lions International, and further to recommend that said elections be conducted and supervised by the Council of governors.
Finding the above-quoted Compromise Agreement to be in order, not contrary to law, public morals or public policy, the same is
hereby approved.
The parties are hereby enjoined to comply strictly and in good faith as well as with sincerity and honesty of purpose the terms,
conditions and stipulations therein contained.