SPOUSES OSCAR AND GINA GIRONELLA VS.

PHILIPPINE NATIONAL BANK

G.R. No. 194515. September 16, 2015
TOPIC: Perfection of a contract

FACTS:
In separate Credit Agreements respectively dated 11 November 1991 and 16 January 1992, the Spouses
Gironella obtained two (2) loans from PNB in the amounts of Php7,500,000.00 and Php2,000,000.00 for
the construction of the Dagupan Village Hotel and Sports Complex. The loans were co-terminus, both
payable on installments and secured by the same real estate mortgage over a parcel of land covered by
Transfer Certificate of Title (TCT) No. 56059 in favor of the creditor, PNB.
In May 1992, seeking to expand their hotel operations, the Spouses Gironella again applied for another
loan with PNB in the amount of Php5,800,000.00 for the construction of a restaurant bar and the purchase
of a generator set. However, the Spouses Gironella began to default in paying their prior two (2) loans.
They would aver, in their complaint until this petition, that their default in payment is attributable to PNB
whose representatives and officers made them believe that their Php5,800,000.00 loan application would
be approved and directed them to proceed with their expansion plans. To that end and with the full
knowledge of the PNBs officers and representatives, the Spouses Gironella used the income generated by
the hotel for the construction of the restaurant bar and purchase of the generator set while the
Php5,800,000.00 loan was pending and still being processed. They alleged that they proposed a
restructuring of their first loan and after a series of meetings, offers and counter offers, the [Spouses
Gironella] accepted the offer of [PNB] to their proposed program to restructure the loan which for all
intents and purposes was already perfected.
From the period of February 1993 to 2 October 1995, the Spouses Gironella paid a total of
Php4,219,000.00 on their first two loans of Php9,500,000.00. In January and April 1998, the Spouses
Gironella likewise paid PNB Php1,000,000.00 and Php1,650,000.00. They maintain that all these
payments were made to effect the restructuring of their loans with PNB.
Meanwhile, in separate instances, on 29 May 1996 and 17 April 1998, while the parties were negotiating
and discussing the restructuring of the Spouses Gironellas loans, PNB made a couple of attempts to
foreclose the mortgaged property. However, the final foreclosure of the mortgaged property was stalled
because of the continuing negotiations between the parties for the restructuring of the loans. By the year
2000, negotiations for the restructuring of the Spouses Gironellas loans was still ongoing and remained
indefinite. On 25 January 2000, after several exchange of correspondence, PNB wrote the Spouses
Gironella and proposed a restructuring agreement which has a note stating, This proposed restructuring
is still subject for evaluation and approval of higher management and therefore tentative in nature.
In a letter dated 7 February 2000, the Spouses Gironella gave a qualified acceptance of PNBs proposed
restructuring, specifically referring to specific terms in the 25 January 2000 proposal of PNB. However,
in its 8 March 2000 letter, PNB rejected finally the counter offer of the Spouses Gironella for the
restructuring of their loan. On 25 July 2000, PNB re-filed its Petition for Extra-Judicial Foreclosure of the
mortgaged property. Forthwith, the Spouses Gironella filed the Complaint before the RTC with prayer for
issuance of a Temporary Restraining Order (TRO) and preliminary injunction to enjoin enforcement of

the original credit agreements, and security therefor, between the parties. Effectively, the Spouses
Gironella sought to enjoin the foreclosure of the mortgaged property.
Subsequently, the RTC granted the Complaint of the Spouses Gironella ruling that there was a perfected
and binding restructured credit agreement, the terms contained in the 25 January 2000 and 7 February
2000 written exchanges of the parties
Posthaste, PNB appealed to the CA questioning the trial courts ruling. PNB argued that the exchange of
correspondence between the parties, specifically the 25 January 2000 and 7 February 2000 letters, did not
constitute a perfected and binding restructuring agreement since there was no express acceptance by
either party of the others counter-offer. PNB averred that it, in fact, finally rejected the restructuring
proposal of the Spouses Gironella on 8 March 2000. The appellate court granted the appeal of PNB and
reversed the ruling of the trial court. It held that there was no final agreement reached by the parties
where the offer was certain and acceptance thereof by the other party was absolute. The appellate court
held that, in this case, a qualified acceptance equated to a counter-offer and, at that point, there was no
absolute and unqualified acceptance which is identical in all respects with that of the offer so as to
produce consent or meeting of the minds.
Hence, this petition.
ISSUES: Whether or not the restructuring agreement between Sps. Gironella and PNB has perfected
RULING:
The petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. The Decision and Order
of the Regional Trial Court, Branch 44, Dagupan City are REVERSED and SET ASIDE. The Amended
Complaint of the petitioners, Oscar and Gina Gironella, is DISMISSED.
The Court did not subscribe to the contention of the Spouses Gironella. The foregoing statement fails to
take into consideration the three (3) distinct stages of a contract: (1) preparation or negotiation, (2)
perfection, and finally, (3) consummation.10 At that point where the Spouses Gironella were applying for
the additional loan of Php5,800,000.00, that involved the negotiation stage for a contract separate from
the first two credit agreements which were consolidated into one, secured by the same real estate
mortgage over TCT No. 56059, both payable on installment and with the same term. Necessarily, the
Spouses Gironella as debtors applying for an additional loan, ought to participate in the negotiations
thereof and await PNBs assessment and processing of their additional loan application.
As to the perfection, under Art. 1319 of the Civil Code, a contract is perfected by mere consent. In turn,
consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance seasonable and absolute.
If qualified, the acceptance would merely constitute a counter-offer as what occurred in this case.
The Spouses Gironellas payments under its original loan account cannot be considered as partial
execution of the proposed restructuring loan agreement. They were clearly made during the pendency of
the negotiations on the restructuring. Such pendency proves, absence, not presence of an agreement
ready for execution. At the time of payments only petitioners obligation under the original credit
agreements were in existence. Indeed, the payment scheme under the proposed restructuring was outlined
by PNB only in the letter of 25 January 2000. Further on this, 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. Once there is concurrence of the offer and acceptance of the object and cause, the stage of
negotiation is finished.22This situation does not obtain in the case at bar. The letter dated 25 January 2000
of PNB was qualifiedly accepted by the Spouses Gironella as contained in their 7 February 2000 letter
and constituted a counter-offer which PNB ultimately rejected in its 8 March 2000 letter. The surrounding
circumstances clearly show that the parties were not past the stage of negotiation for the terms and
conditions of the restructured loan agreements.
There was no meeting of the minds on the restructuring of the loans. Thus, the Spouses Gironella's
original Php9,500,000.00 loan agreement subsists. In all, we affirm the appellate court's ruling, PNB is
not liable either for fraud, gross negligence or abuse of right. It did not breach any agreement there having
been no restructured loan agreement at all that was perfected.
RATIO:
To reach that moment of perfection, the parties must agree on the same thing in the same sense, so that
their minds meet as to all the terms. They must have a distinct intention common to both and without
doubt or difference; until all understand alike, there can be no assent, and therefore no contract. The
minds of parties must meet at every point; nothing can be left open for further arrangement. So long as
there is any uncertainty or indefiniteness, or future negotiations or considerations to be had between the
parties, there is not a completed contract, and in fact, there is no contract at all.

MOVERTRADE CORPORATION VS. COA AND DPWH

G.R. No. 204835. September 22, 2015
Topic: Contractual Obligations; Compliance in Good Faith
FACTS:

On February 7, 1996, petitioner and respondent Department of Public Works and Highways (DPWH)
entered into a Contract Agreement for dredging and other related works in Pampanga Bay and the
primary Pasac-Guagua-San Fernando Waterways in Pampanga, which were affected by the Mt. Pinatubo
eruptions and mudflows, in the total amount of P188,698,000.00.
On August 13, 1997, due to the alleged absence of spoil sites, petitioner requested permission from
Director Soriquez, Head of the Mount Pinatubo Emergency-Project Management Office of respondent
DPWH, to allow it to undertake side dumping (dumping within the river) chargeable against the dredging
works. However, Director Soriquez issued a letter denying the request. He reminded petitioner that side
dumping was not allowed and that as per the report of Engr. Marcelino P. Bustos (Engr. Bustos), the Area
Engineer of respondent DPWH, petitioner could still pump the dredge spoils to the following spoil sites:
Pascual A, Pascual B, and the Regala fishpond.
Despite the denial and the prohibition issued by Director Soriquez and Engr. Bustos, petitioner continued
to side dump. Thus, on October 1, 1997, Director Soriquez issued another letter with regard to the
prohibition against side dumping. However, petitioner ignored the prohibition and continued to side
dump.

When the project was in its final phase of completion, petitioner, through its President, Mr. Wenceslao
Zingapan, wrote a letter16 dated October 15, 1997 to then DPWH Secretary Gregorio Vigilar (Secretary
Vigilar) asking for payment for the dredging work it rendered. In the letter, petitioner explained that it was
forced to side dump the dredge spoils along the project waterway due to strong and heavy siltations
In reply, Director Soriquez issued a letter informing petitioner of the denial of its request for payment.
Thus, when the project was completed, respondent DPWH paid petitioner the total amount of
P180,029,910.15, covered by various disbursement vouchers. The amount of P7,354,897.10, dredging
work rendered by petitioner, however, was not paid
Accordingly, on February 19, 2010, petitioner filed with respondent COA a money claim against
respondent DPWH for payment of dredging works with side dumping of spoils in Pampanga Bay and the
primary Pasac-Guagua-San Fernando Waterways in Pampanga amounting to P7,354,897.10.
Respondent COA ruled that petitioner is not entitled to payment for the dredging works for breach of
contract. Paragraph 11 of the Contract Agreement prohibits side dumping as it specifically requires that
dredge spoils should be dumped at pre-designated areas to prevent them from spilling back into the
channel.
Petitioner likewise asserts that it is entitled to its money claim in the highest interest of justice and equity.
Hence, this petition.
ISSUES: Whether or not petitioner shall be entitled to the payment of P7,354,897.10 for dredging works.
RULING:
WHEREFORE, the Petition is hereby DISMISSED for lack of merit. The assailed December 29, 2011
Decision and the November 5, 2012 Resolution of respondent Commission on Audit are hereby
AFFIRMED.
Petitioner failed to comply with Paragraph 11 of the Contract Agreement as it opted to side dump dredge
spoils back to the river. Also, petitioner cannot justify the breach by merely alleging that the spoil sites
provided by respondent DPWH were inadequate, uneconomical, unsafe, and inoperable. To begin with,
no evidence was presented to support these allegations. And even if true, petitioner failed to inform
respondent DPWH of these problems. In fact, after receiving Director Soriquezs letter dated August 18,
1997 denying its request to side dump the dredge spoils, petitioner did not ask for a reconsideration nor
did it issue any letter questioning the capacity of the designated spoil sites. Instead, it was only after the
dredge spoils were side dumped or when petitioner was already following-up its claim for payment that it
explained in writing its reasons for side dumping. Petitioners blatant defiance of the prohibition on side
dumping is a violation of the contract that should not be ignored just because petitioner was able to
complete the project.
In view of Art. 1159, it is a basic principle in law that contracts have the force of law between the parties
and should be complied with in good faith. In this case, the contract specifically provides the manner of
disposing dredge spoils. Thus, petitioner cannot unilaterally change the manner of disposal without first
amending the contract or obtaining the express consent or approval of respondent DPWH. Otherwise,
petitioner would be guilty of breaching the contract. [A] breach occurs where the contractor inexcusably
fails to perform substantially in accordance with the terms of the contract. Without a doubt, petitioners
failure to dump the dredge spoils at the designated spoil sites constitutes a breach. Thus, the Court agree
with respondent COA that petitioner is not entitled to its money claim for the 165,576.27 cubic meters
dredging work as it was done in contravention of paragraph 11 of the Contract Agreement.

RATIO:
Contracts have the force of law between the contracting parties and should be complied with in good.
Thus, a party who causes breach of contract shall bear the loss.

SERGIO R. OSMENA III VS. POWER SECTOR ASSETS AND LIABILITIES

MANAGEMENT CORPORATION, ET. AL.
G.R. No. 212686. September 28, 2015
TOPIC: Limitations on Contractual Stipulations

FACTS:
Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled
corporation created by virtue of Republic Act (R.A.) No. 9136, otherwise known as the Electric Power
Industry Reform Act (EPIRA) of 2001. Its principal purpose is to manage the orderly sale, disposition,
and privatization of the National Power Corporation's (NPC's) generation assets, real estate and other
disposable assets, and Independent Power Producer (IPP) contracts, with the objective of liquidating all
NPC financial obligations and stranded contract costs in an optimal manner. Respondent Emmanuel R.
Ledesma, Jr. (Ledesma) is the incumbent President and Chief Executive Officer of PSALM.
SPC is a joint venture corporation between Salcon Power Corporation and Korea Power Corporation
(Kepco). TPVI is a subsidiary of AboitizPower, the power generation company of the Aboitiz Group.
On October 16, 2009, PSALM privatized the 55-MW Naga Power Plant (LBGT) by way of negotiated
sale after a failed bidding in accordance with the LBGT Bidding Procedures. The land underlying the
LBGT was also leased out for a period of 10 years. This bidding resulted in SPCs acquisition of the
LBGT through an Asset Purchase Agreement (LBGT-APA) and lease of the land under a Land Lease
Agreement (LBGT-LLA). The LBGT-LLA would expire on January 29, 2020. The LBGT-LLA
contained a provision for SPCs right to top in the event of lease or sale of property which is not part of
the leased premises.
On December 27, 2013, the Board of Directors of PSALM approved the commencement of the 3rd
Round of Bidding for the sale of the 153.1- MW NPPC. Only SPC and TPVI submitted bids. On March
31, 2014, TPVI was declared as the highest bidder. Consequently, a Notice of Award6 was issued to TPVI
on April 30, 2014, subject to SPCs right under Section 3.02 of the LBGT-LLA, as previously stated in
Section 1B-20 of the Bidding Procedures.
In a letter dated April 29, 2014, PSALM notified SPC of TPVIs winning bid which covers the purchase
of the NPPC and lease of the land. It also advised SPC that under the terms of LBGT-LLA (Sections
2.01 and 3.02), the lease of the land (as governed by the LBGT-LLA) will likewise expire on January 29,
2020.8 In a letter-reply dated May 7, 2014, SPC confirmed that it is exercising the right to top the
winning bid of TPVI and will pay the amount of Php1,143,240,000.00 on the understanding that the term
of the lease is 25 years from Closing Date.
Hence, this petition

Petitioner raised the nullity of the option contract due to the policy requiring competitive public bidding
in all government contracts. Petitioner contends that by granting SPC the right to top, PSALM violated
the express provisions of R.A. No. 9136 (EPIRA Law) and R.A. No. 9184 (Procurement Law) on public
bidding by failing to maintain bidders on equal footing in order to give the government the best possible
and available offer for public assets being sold or leased. He posits that SPCs exercise of its right to top
is disadvantageous to the Government and that the provision enables SPC to skirt around eligibility
requirements for a qualified bidder.
SPC asserts that even on substantive grounds, the petition should still be dismissed as the right to top is
clearly not an option contract and the Naga LBGT was validly awarded to SPC through a public bidding.
SPC maintains that the right to top granted under the LBGT-LLA and exercised by it did not violate the
rules of competitive bidding. The implementation of such right to top, moreover, does not place the
Government in a disadvantaged position but rather assures the Government of an additional 5% of the
highest reasonable bid. SPC thus argues that the right to top provision in the LBGT-LLA is consistent
with public policy and there is no law that invalidates such provision, such that SPCs vested right should
not be disregarded. TPVI further contends that aside from SPCs continuous breach of its obligation to
operate the Naga LBGT, the right to top provision in the LBGT-LLA provides SPC with the ability to
prevent any entity from successfully bidding for and ultimately owning the LBGT and leasing the land.
Hence, the Government does not stand to benefit from the right to top provision in the LBGT-LLA.
ISSUES: Whether or not right to top provisions in the land lease agreements entered into by PSALM
contravene public policy on competitive bidding and shall render such contract void
RULING:
WHEREFORE, the petition is hereby GIVEN DUE COURSE and the writ prayed for accordingly
GRANTED. The right of first refusal (right to top) granted to Sakon Power Corporation under the 2009
Naga LBGT-LLA is hereby declared NULL and VOID. Consequently, the Asset Purchase Agreement
(NPPC-APA) and Land Lease Agreement (NPPC-LLA) executed by the Power Sector Assets and
Liabilities Management Corporation and SPC are ANNULLED and SET ASIDE.
The Court held that the grant of first refusal to respondent constitutes an unauthorized provision in the
contract that was entered into pursuant to the bidding, having been contractually bargained for by
respondent after it won the public bidding for the purchase of fly ash from NPCs Batangas Power Plant.
It noted that not only did the provision substantially amended the terms of the contract bidded upon -- so
that resultantly, the other bidders were deprived of the terms and opportunities granted to respondent after
it won the public auction -- it so altered the bid terms by effectively barring any and a true biddings in the
future. The right of first refusal being contrary to public policy that government contracts must be
awarded through public bidding, it was therefore invalid and have no binding effect nor does it confer a
preferential right upon respondent to the fly ash of NPCs power plants.
Stipulations on right of first refusal over the leased premises have been held to be valid as they are
commonly inserted in contracts of lease for the benefit of lessees who wanted to be assured that they shall
be given the first crack or the first option to buy the property at the price which the owner is willing to
accept. Where such right of first refusal is incorporated in lease contracts involving public assets,
however, courts go beyond ascertaining and giving effect to the intent of the contracting parties. For in
this jurisdiction, public bidding is the established procedure in the grant of government contracts. The
award of public contracts, through public bidding, is a matter of public policy.

In the award of government contracts, the law requires a competitive public bidding, which aims to
protect the public interest by giving the public the best possible advantages thru open competition. It is a
mechanism that enables the government agency to avoid or preclude anomalies in the execution of public
contracts.
Under Art. 1306 of the Civil Code provides limitations on contractual stipulations such as a contract must
not be contrary to public policy otherwise it would render the contract void. In present case, the grant of
right to top to SPC under the LBGT-LLA is void as it is not founded on the said lessee's legitimate interest
over the leased premises. SPC's argument that the privatization of NPPC was even more advantageous to
the Government, simply because it resulted in a higher price (Php54 million more) than TPVI's winning
bid, is likewise untenable. Whatever initial gain from the higher price obtained for the NPPC compared to
the original bid price of TPVI is negated by the fact that SPC 's right to top had discouraged more
potential buyers from submitting their bids, knowing that even their most reasonable bid can be defeated
by SPC' s exercise of its right to top. In fact, only SPC and TPVI participated in the 3rd Round of
Bidding. Attracting as many bidders to participate in the bidding for public assets is still the better means
to secure the best bid for the Government, and achieve the objective under the EPIRA to private NPC's
assets in the most optimal manner.
RATIO:

A contract which has a tendency to be injurious to the public or is against public good is contrary
to public policy. As such, it shall be deemed void.