SINGSON ENCARNACION VS.

BALDOMAR

FACTS:
Vicente Singson Encarnacion leased his house to Jacinta Baldomar and her son,
Lefrando Fernando upon a month-to-month basis. After Manila was liberated in the
last war, Singson Encarnacio notified Baldomar and her son Fernando to vacate the
house because he needed it for his office as a result of the destruction of the
building where he had his office before. Despite the demand, the Baldomar and
Fernando continued their occupancy. The defense of Baldomar and Fernando was
that the contract with Singson Encarnacion authorized them to continue occupancy
indefinitely while they should faithfully fulfill their obligation with respect to
payment of rentals. Singson Encarnacion contended that the lease had always and
since the beginning been upon a month-to month basis.

ISSUE:
Was it tenable for Singson Encarnacion to discontinue the lease of Baldomar and her
son?

RULING:
The continuance and fulfillment of the contract of lease cannot be made to depend
solely and exclusively upon the free and uncontrolled choice of the lessees between
continuing paying the rentals or not, completely depriving the owner of all say in
the matter. The defense of Baldomar
and Fernando would leave to the sole and exclusive will of one of the contracting
parties the validity and fulfillment of the contract of lease, within the meaning of
Article 1256 of the Civil Code. For if this were allowed, so long as the lessee elected
to continue the lease by continuing the payment of the rentals the owner would
never be able to discontinue the lease; conversely, although the owner should
desire the lease to continue, the lessee could effectively thwart his purpose if he
should prefer to terminate the contract by the simple expedient of stopping
payment of the rentals.

Coquia v. Fieldmens Insurance

Facts:

On Dec. 1, 1961, Fieldmens Insurance co. Issued in favor of the Manila Yellow
Taxicab a common carrier insurance policy with a stipulation that the
company shall indemnify the insured of the sums which the latter may be
held liable for with respect to death or bodily injury to any faire-paying
passenger including the driver and conductor.

The policy also stated that in the event of the death of the driver, the
Company shall indemnify his personal representatives and at the Companys
 option may make indemnity payable directly to the claimants or heirs of the
claimants.

During the policys lifetime, a taxicab of the insured driven by Coquia met an
accident and Coquia died.

When the company refused to pay the only heirs of Coquia, his parents, they
institued this complaint. The company contends that plaintiffs have no cause
of action since the Coquias have no contractual relationship with the
company.
Issue:
Whether or not plaintiffs have the right to collect on the policy.

Held:
YES, Athough, in general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in the second
paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract
should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a favor upon a
third person." This is but the restatement of a well-known principle concerning
contracts pour autrui, the enforcement of which may be demanded by a third party
for whose benefit it was made, although not a party to the contract, before the
stipulation in his favor has been revoked by the contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui
this character being made more manifest by the fact that the deceased driver paid
fifty percent (50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have a direct cause of action
against the Company, and, since they could have maintained this action by
themselves, without the assistance of the insured it goes without saying that they
could and did properly join the latter in filing the complaint herein.

Kauffman vs PNB, GR No. 16454 September 29, 1921

Facts:
George A. Kauffman, was the president of a domestic corporation engaged chiefly in
the exportation of hemp from the Philippine Islands and known as the Philippine
Fiber and Produce Company, of which company the plaintiff apparently held in his
own right nearly the entire issue of capital stock. He was based in New York City and
as the president of the said company, he was entitled to receive a dividend; as per
instruction, Wicks who worked as the treasurer of the company, went to the
exchange department of PNB and requested a telegraphic transfer of the money to
Kauffman.

The PNB agreed with additional charges for the transaction. The treasurer issued a
check to PNB and it was accepted. The PNBs representative in New York sent a
message suggesting the advisability of withholding this money from Kauffman, in
view of his reluctance to accept certain bills of the company. PNB acquiesced in this
and dispatched to its NY agency a message to withhold the Kauffman payment as
suggested. Meanwhile, Wicks then informed Kauffman that his dividends had been
wired to his credit in the NY agency of PNB. So Kauffman went to PNB office in NYC
and demanded the money, however, he was refused payment. So he filed this
complaint.

Issue:
Whether or not Kauffman has a right of action against PNB?

Held:
Yes. It is a stipulation pour autrui.

Should the contract contain any stipulation in favor of a third person, he may
demand its fulfillment, provided he has given notice of his acceptance to the person
bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the
light of the conclusion thus stated, the right of the plaintiff to maintain the present
action is clear enough; for it is undeniable that the bank's promise to cause a
definite sum of money to be paid to the plaintiff in NYC is a stipulation in his favor
within the meaning of the paragraph above quoted; and the circumstances under
which that promise was given disclose an evident intention on the part of the
contracting parties that the plaintiff should have the money upon demand in NYC.
The recognition of this unqualified right in the plaintiff to receive the money implies
in our opinion the right in him to maintain an action to recover it.

It will be noted that under the paragraph cited a third person seeking to enforce
compliance with a stipulation in his favor must signify his acceptance before it has
been revoked. In this case the plaintiff clearly signified his acceptance to the bank
by demanding payment; and although PNB had already directed its NY agency to
withhold payment when this demand was made, the rights of the plaintiff cannot be
considered to as there used, must be understood to imply revocation by the mutual
consent of the contracting parties, or at least by direction of the party purchasing
he exchange. Thus, it was said, "Cable transfers, therefore, mean a method of
transmitting money by cable wherein the seller engages that he has the balance at
the point on which the payment is ordered and that on receipt of the cable directing
the transfer his correspondent at such point will make payment to the beneficiary
described in the cable. All these transaction are matters of purchase and sale create
no trust relationship."
i. Young vs. CA, 196 SCRA 295
FACTS:
On November 7, 1961, the estates of Humiliano Rodriguez and
Timoteo Rodriguez leased to Victor D. Young a parcel of land
consisting of 840 square meters, on which the latter's building,
then known as Liza Theater was standing. The contract of lease
contained the following stipulation:
(8) That at the end of this lease contract or after the twenty-first
(21st) year, the LESSORS may purchase the LIZA THEATRE
building (excluding movie projectors, equipment, and other
movables of the business of the LESSEE) at their option from the
LESSEE by paying the market value thereof if acceptable to the
LESSEE; provided, however, that if the LESSORS do not exercise
this option to buy, the LESSEE shall continue for another period of
TWENTY-ONE (21) YEARS and the rental will be agreed upon by
the parties with the prevailing rental of properties near the
premises as the basis.
On December 18, 1961, exactly the same contract was again
executed by the same parties, except that the estate of Humiliano
Rodriguez was this time represented by Antolin A. Jariol, instead of
Miguela Rodriguez, as one of the signatories.
During the period of the lease, the two estates were finally
settled, and the land leased to Victor Young was distributed
among Fausta R. Jagdon, Amparo R. Casafranca, Miguela R. Jariol,
the herein private respondents, and Teresita R. Natividad.
Natividad later sold her share, consisting of 223 square meters, to
Johnny Young, son of Victor D. Young.
On November 5, 1982, or two days before the expiration of the
first contract, the heirs (except Natividad) filed a suit for specific
performance against Victor D. Young to compel him to sell to them
his theater-building for P 135,000.00. They tendered this amount
with the clerk of court by way of consignation. They also sued
Victor Young's son, Johnny, as an unwilling co-plaintiff.
The defendants contended that the plaintiffs had no cause of
action because the complaint was premature. The lease contract
of November 7, 1961, had been novated by the second lease
contract dated December 18, 1961; hence, the lease was
terminated on December 18, 1982, and not November 7, 1982.
Moreover, even if the lease ended on November 7, 1982, the
action brought by the respondent on November 5, 1982, was still
premature because the plaintiffs had not yet then notified Victor
Young of the exercise of their option. The lease expired without a
valid exercise of the option and the lease contract was thus
renewed for another 21 years.
In the May 28, 1986 RTC ruling, it found in favor of the plaintiffs
and held that there was no novation. The second contract was
executed merely to substitute the correct signatory. As there was
no express stipulation therein that it superseded and replaced the
first contract, the complaint was not prematurely filed.
On appeal, the decision was modified by the respondent court 1
which, while agreeing that there was no novation of the first
contract, declared that the original period of the lease was
extended by the second contract. Hence, this petition for review.
Issue:
WoN CA erred in modifying the RTC ruling, that there is novation
by reason of the second contract?
RULING:

According to Article 1370 of the new Civil Code:

If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulation shall control.
The action was premature not because the option was exercised
prior to the expiration of the lease but because the complaint was
filed before the defendant could reject the lessors offer. No right
of the plaintiffs had as yet been violated when they filed their
complaint on November 5, 1982.
Since a cause of action requires, as essential elements, not only
a legal right of the plaintiff and a correlative obligation of the
defendant but also an act or omission of the defendant in
violation of said legal right, the cause of action does not accrue
until the party obligated refuses, expressly or impliedly, to comply
with its duty.5
Therefore unless the plaintiff has a valid and subsisting cause of
action at the time his action is commenced, the defect cannot be
cured or remedied by the acquisition or accrual of one while the
action is pending, and a supplemental complaint or an
amendment setting up such after-accrued cause of action is not
permissible.6 (Emphasis supplied.)
The Court adds that even if the case was prematurely filed, it did
not follow that the option was not properly exercised. An option
may be exercised at any time before the expiration of the period
agreed upon. An option is defined as a contract granting a
person the privilege to buy or not to buy certain objects at any
time within the agreed period at a fixed price.7 It is settled that
when the offer has stated a fixed period for acceptance, the
offeree may accept at any time until such period expires.

Southwestern Sugar & Molasses Co. vs. Atlantic Gulf &

Pacific Company
97 Phil 247
June 1955

FACTS:

On March 24, 1953, defendant-appellant Atlantic granted plaintiff-

appellee Southwestern an option period of ninety days to buy the
formers barge No. 10 for the sum of P30,000. On May 11 of the
same year, Southwestern Company communicated its acceptance
of the option to Atlantic through a letter, to which the latter
replied that their understanding was that the "offer of option" is to
be a cash transaction and to be effected "at the time the lighter is
available." On June 25, Atlantic advised the Southwestern
Company that since there is still further work for it, the barge
could not be turned over to the latter company.

On June 27, 1953, the Southwestern Company filed this action to

compel Atlantic to sell the barge in line with the option, depositing
with the court a check covering the sum of P30,000, but said
check was later withdrawn with the approval of the court. On June
29, the Atlantic withdrew its "offer of option" with due notices to
Southwestern Company stating that the option was granted
merely as a favor. The Atlantic contended that the option to sell it
made to Southwestern Company is null and void because said
option to sell is not supported by any consideration.

The trial court granted herein plaintiff-appellee Southwestern

Companys action for specific performance and ordered herein
defendant-appellant Atlantic to pay damages equivalent to 6 per
centum per annum on the sum of P30,000 from the date of the
filing of the complaint.
ISSUE:

Is Atlantic liable for specific performance and to pay damages in

favor of Southwestern Company?

COURT RULING:

The Supreme Court reversed the trial courts decision applying

Article 1479 of the new Civil Code. The Court reiterated that "an
accepted unilateral promise" can only have a binding effect if
supported by a consideration, which means that the option can
still be withdrawn, even if accepted, if said option is not supported
by any consideration. The option that Atlantic had provided was
without consideration, hence, can be withdrawn notwithstanding
Southwestern Companys acceptance of said option.

American jurisprudence hold that an offer, once accepted, cannot

be withdrawn, regardless of whether it is supported or not by a
consideration, but the specific provisions of Article 1479
commands otherwise. While under the "offer of option" in
question appellant Atlantic has assumed a clear obligation to sell
its barge to appellee Southwestern Company and the option has
been exercised in accordance with its terms, and there appears to
be no valid or justifiable reason for the former to withdraw its
offer, the Court cannot adopt a different attitude because the law
on the matter is clear.