METRO RAIL TRANSIT DEVELOPMENT CORPORATION, v.

GAMMON PHILIPPINES, INC.,

This case involves MRT's MRT-3 North Triangle Description Project (Project), covering
54 hectares of land, out of which 16 hectares were allotted for a commercial center. Half of the
commercial center would be used for a podium structure (Podium), which was meant to provide
the structure for the Project's Leasable Retail Development and to serve as the maintenance
depot of the rail transit system.

Parsons was the Management Team authorized to oversee the construction’s execution.
On April 30, 1997, Gammon received from Parsons an invitation to bid for the complete
concrete works of the Podium. Gammon submitted three separate bids and several clarifications
on certain provisions of the Instruction to Bidders and the General Conditions of Contract.
Gammon won the bid. On August 27, 1997, Parsons issued a Letter of Award and Notice to
Proceed (First Notice to Proceed) to Gammon. It was accompanied by the formal contract
documents

Thereafter, the controversy stemmed when Parsons informed Gammon that MRT was
temporarily rescinding the Third Notice to Proceed, noting that it remained unaccepted by
Gammon. However, Fourth Notice to Proceed, the terms were different from those of the First
and the Third Notices to Proceed. The Fourth Notice to Proceed also expressly cancelled the
First and Third Notices to Proceed. Gammon qualifiedly accepted the Fourth Notice to Proceed.
MRT treated Gammon's qualified acceptance as a new offer. In a Letter dated June 22, 1998,
MRT rejected Gammon's qualified acceptance and informed Gammon that the contract would
be awarded instead to Filsystems if Gammon would not accept the Fourth Notice to Proceed
within five (5) days.

In a Letter dated July 8, 1998, Gammon wrote MRT, acknowledging the latter's intent to
grant the Fourth Notice to Proceed to another party despite having granted the First Notice to
Proceed to Gammon. Thus, it notified MRT of its claims for reimbursement for costs, losses,
charges, damages, and expenses it had incurred due to the rapid mobilization program in
response to MRT's additional work instructions, suspension order, ongoing discussions, and the
consequences of its award to another party. But MRT informed Gammon that it was willing to
reimburse Gammon for its cost in participating in the bid amounting to about 5% of Gammon's
total claim of more or less P121,000,000.00. Gammon replied that MRT's offer was not enough
to cover the expenses it had incurred for the Project and that it was willing to send MRT
additional information necessary for the evaluation of its claims. Thereafter, On July 1, 1999,
Gammon filed a Notice of Claim before CIAC against MRT.

MRT argues that there was no perfected contract between the parties as Gammon only
accepted MRT's offer after MRT had already revoked it. MRT claims that it withdrew its offer to
Gammon in its September 8, 1997 Letter, when it suspended the Project to review the foreign
exchange rates and interest rates. It emphasizes that while Gammon had already then returned
the First Notice to Proceed, it did not return the contract documents until September 12,
1997. By then, MRT had already withdrawn the First Notice to Proceed, and the parties were
already renegotiating the contract's cause and object.

On the other hand, Gammon maintains that there was a perfected contract between the
parties. It insists that MRT did not withdraw or modify its offer before Gammon signed and
returned the First Notice to Proceed and the contract documents. It claims that the contract was
not cancelled and was only temporarily and partially suspended, and this did not affect its
perfection.

CIAC ruled in favor of Gammon. The Court of Appeals affirmed CIAC 's finding that the
contract was perfected when the contract documents were returned to MRT on September 9,
1997. It found that the contract was merely suspended and not terminated when MRT was
studying the effects of the foreign exchange rates and interests on the Project. Moreover, it
noted that MRT found it necessary to expressly cancel the First Notice to Proceed, implying that
a contract was perfected.

ISSUE
Was there a perfected contract between MRT and Gammon?

RULING

YES.
This Court rules that there is a perfected contract between the parties. Article 1305 of
the Civil Code states: 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.
Article 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
law.
The requisites of a valid contract are provided for in Article 1318 of the Civil Code:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

A contract is perfected when both parties have consented to the object and cause of the
contract. There is consent when the offer of one party is absolutely accepted by the other party.
The acceptance of the other party may be express or implied. However, the offering party may
impose the time, place, and manner of acceptance by the other party, and the other party must
comply.

Thus, there are three (3) stages in a contract: negotiation, perfection, and
consummation. Negotiation refers to the time the parties signify interest in the contract up until
the time the parties agree on its terms and conditions. The perfection of the contract occurs
when there is a meeting of the minds of the parties such that there is a concurrence of offer and
acceptance, and all the essential elements of the contract—consent, object and cause—are
present. The consummation of the contract covers the period when the parties perform their
obligations in the contract until it is finished or extinguished.

To determine when the contract was perfected, the acceptance of the offer must be
unqualified, unconditional, and made known to the offeror. Before knowing of the acceptance,
the offeror may withdraw the offer. Moreover, if the offeror imposes the manner of acceptance
to be done by the offerree, the offerree must accept it in that manner for the contract to be
binding. If the offeree accepts the offer in a different manner, it is not effective, but constitutes a
counter-offer, which the offeror may accept or reject.
 Under Article 1319 of the New Civil Code, the consent by a party is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute
the contract. An offer may be reached at any time until it is accepted. An offer that is not
accepted does not give rise to a consent. The contract does not come into existence. To
produce a contract, there must be acceptance of the offer which may be express or implied but
must not qualify the terms of the offer. The acceptance must be absolute, unconditional and
without variance of any sort from the offer.

In bidding contracts, this Court has ruled that the award of the contract to the bidder is
an acceptance of the bidder's offer. Its effect is to perfect a contract between the bidder and the
contractor upon notice of the award to the [Link], the award of a contract to a bidder
perfects the contract. Failure to sign the physical contract does not affect the contract's
existence or the obligations arising from it.

Applying this principle to the case at bar, the Court finds that there is a perfected
contract between the parties. MRT has already awarded the contract to Gammon, and
Gammon's acceptance of the award was communicated to MRT before MRT rescinded the
contract. The Invitation to Bid issued to Gammon stated that MRT "will select the Bidder that
[MRT] judges to be the most suitable, most qualified, most responsible and responsive, and with
the most attractive Price and will enter into earnest negotiations to finalize and execute the
Contract." Parsons thereafter issued the First Notice to Proceed, which stated: We are pleased
to inform [you] that you have been awarded the work on the construction of the Podium
Structure for the MRT-3 EDSA North Triangle Development Project. The formal contract
document, which is the product of a series of discussions and negotiation is herewith attached
for your [Link]

Thus, Gammon's receipt of the First Notice to Proceed constitutes the acceptance that is
necessary to perfect the contract. Therefore, there is already a perfected contract between the
parties.
 SPOUSES EDUARDO and LYDIA SILOS,
vs.
PHILIPPINE NATIONAL BANK

G.R. No. 181045 July 2, 2014 DEL CASTILLO, J.:

FACTS

Spouses Eduardo and Lydia Silos (petitioners) secure a one-year revolving credit line of
₱150,000.00 obtained from PNB, a Real Estate Mortgage over a 370-square meter lot.
Thereafter, the credit line was increased to ₱1.8 million and the mortgage was correspondingly
increased to ₱1.8 million. Respondent regularly renewed the line from 1990 up to 1997, and
petitioners made good on the promissory notes, religiously paying the interests without objection
or fail. But in 1997, petitioners faltered when the interest rates soared due to the Asian financial
crisis. Petitioners’ sole outstanding promissory note for ₱2.5 million – PN 9707237 executed in
July 1997 and due 120 days later or on October 28, 1997 – became past due, and despite
repeated demands, petitioners failed to make good on the note. Despite demand, petitioners
failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage.
Petitioners filed Civil Case seeking annulment of the foreclosure sale and an accounting of the
PNB credit.

Petitioners theorized that after the first promissory note where they agreed to pay
19.5% interest, the succeeding stipulations for the payment of interest in their loan agreements
with PNB – which allegedly left to the latter the sole will to determine the interest rate – became
null and void. Petitioners added that because the interest rates were fixed by respondent
without their prior consent or agreement, these rates are void, and as a result, petitioners should
only be made liable for interest at the legal rate of 12%.

ISSUE:

May the bank, on its own, modify the interest rate in a loan agreement without violating the
mutuality of contracts?

RULING

NO.
Art. 1308 of the Civil Code provides that the contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them. In order that obligations arising
from contracts may have the force of law between the parties, there must be mutuality between
the parties based on their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is
void. Hence, even assuming that the loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have invested the loan
agreement with the character of a contract of adhesion, where the parties do not bargain on
equal footing, the weaker party’s (the debtor) participation being reduced to the alternative "to
take it or leave it" such a contract is a veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition.
 The binding effect of any agreement between parties to a contract is premised on two
settled principles: (1) that any obligation arising from contract has the force of law between the
parties; and (2) that there must be mutuality between the parties based on their essential
equality. Any contract which appears to be heavily weighed in favor of one of the parties so as
to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance
of the contract which is left solely to the will of one of the parties, is likewise, invalid.
Respondent bank unilaterally altered the terms of its contract with petitioners by increasing the
interest rates on the loan without the prior assent of the latter. In fact, the manner of agreement
is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest
shall be due unless it has been expressly stipulated in writing." What has been "stipulated in
writing" from a perusal of interest rate provision of the credit agreement signed between the
parties is that petitioners were bound merely to pay 21% interest, subject to a possible
escalation or de-escalation, when 1) the circumstances warrant such escalation or de-
escalation; 2) within the limits allowed by law; and 3) upon agreement.

Moreover, in loan agreements, it cannot be denied that the rate of interest is a principal
condition, if not the most important component. Thus, any modification thereof must be mutually
agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot consider a
stipulation granting a party the option to prepay the loan if said party is not agreeable to the
arbitrary interest rates imposed. Premium may not be placed upon a stipulation in a contract
which grants one party the right to choose whether to continue with or withdraw from the
agreement if it discovers that what the other party has been doing all along is improper or illegal.
 AYALA LAND, INC. V. ASB REALTY CORP.,
GR NO. 210043 SEPTEMBER 26, 2018 DEL CASTILLO, J.;

FACTS

ALI and ASBRC are domestic corporations engaged in real estate development. On the
other hand, EMRASON is a domestic corporation principally organized to manage a 3 72-
hectare property located in Dasmarifias, Cavite.

ALI claimed that, EMRASON's brokers sent a proposal for a joint venture agreement
between ALI and EMRASON for the development of EMRASON's Dasmarifias Property.
According to ALI, EMRASON made it appear that Ramos, Jr., Antonio, and Januario had full
authority to act on EMRASON's behalf in relation to the JVA.

ALI and the Ramos children subsequently entered into a Contract to Sell dated May 18,
1994, under which ALl agreed to purchase the Dasmarinas property. ALI alleged that it came to
know that a Letter-Agreement dated May 21, 1994 (Letter-Agreement) and a Real Estate
Mortgage respecting the Dasmarifias Property had been executed by Ramos, Sr. and Antonio
for and in behalf of EMRASON, on one hand, and ASBRC on the other.

After ASBRC learned about the Contract to Sell executed between ALI and the Ramos
children and the annotation of the Contract to Sell on the transfer certificates of title (TCTs)
covering the Dasmarinas Property, ASBRC and EMRASON filed a Complaint for the
nullification of the Contract to sell and the cancellation of the annotations on the TCTs over the
Dasmarinias Property.

The RTC declared the Contract to Sell between ALI and the Ramos children void
because of the latter's lack of authority to sign the Contract to Sell on behalf of EMRASON.

ISSUE
Whether Emrason gave its consent to the contract entered into between ALI and Ramos
children?

RULING
No.
A contract is void if one of the essential requisites of contracts under Article 1318 of the
New Civil Code is lacking." Consent, being one of these requisites, is vital to the existence of a
contract "and where it is wanting, the contract is non-existent.

For juridical entities, consent is given through its board of directors. A juridical entity, like
EMRASON, "cannot act except through its board of directors as a collective body, which is
vested with the power and responsibility to decide whether the corporation should enter a
contract that will bind the corporation, subject to the articles incorporation, by-laws, or relevant
provisions of law."Although the general rule is that "no person, not even its officers, can validly
bind a corporation" without the authority of the corporation's board of directors, this Court has
recognized instances where third persons' actions bound a corporation under the doctrine of
apparent authority or ostensible agency.

In this case, a perusal of the August 3, 1993 letter shows that EMRASON, through
Ramos, Sr. authorized Ramos, Jr. and Antonio merely to "collaborate and continue negotiating
and discussing with [ALI} terms and conditions that are mutually beneficial" to the parties
therein. Nothing more, nothing less. To construe the letter as a virtual carte blanche for the
Ramos children to enter into a Contract to Sell regarding the Dasmarifias Property would be
unduly stretching one's imagination. "[A]cts done by [the] corporate officers beyond the scope of
their authority cannot bind the corporation unless it has ratified such acts expressly or is
estopped from denying them." What is clear from the letter is that EMRASON authorized the
Ramos children only to negotiate the terms of a potential sale over the Dasmarifias Property,
and not to sell the property in an absolute way or act as signatories in the contract.

Thus, the Court ruled that Contract to Sell entered into by and between ALI and the
Ramos children is null and void. While the Letter-Agreement entered into by and between
EMRASON and ASBRC is valid