Laudico vs.

Arias

On February 5, 1919, the defendant, Vicente Arias, who, with his codefendants, owned the
building Nos. 205 to 221 on Carriedo Street, on his behalf and that of his cowners, wrote a
letter to the plaintiff, Mamerto Laudico, giving him an option to lease the building to a third
person, and transmitting to him for that purpose a tentative contract in writing containing the
conditions upon which the proposed lease should be made. Later Mr. Laudico presented his
coplaintiff, Mr. Fred. M. Harden, as the party desiring to lease the building. On one hand, other
conditions were added to those originally contained in the tentative contract, and, on the other,
counter-propositions were made and explanations requested on certain points in order to make
them clear. These negotiations were carried on by correspondence and verbally at interviews
held with Mr. Vicente Arias, no definite agreement having been arrived at until the plaintiff, Mr.
Laudico, finally wrote a letter to Mr. Arias on March 6, 1919, advising him that all his
propositions, as amended and supplemented, were accepted. It is admitted that this letter was
received by Mr. Arias by special delivery at 2.53 p. m. of that day. On that same day, at 11.25 in
the morning, Mr. Arias had, in turn, written a letter to the plaintiff, Mr. Laudico, withdrawing the
offer to lease the building.
The chief prayer of the plaintiff in this action is that the defendants be compelled to execute the
contract of lease of the building in question. It thus results that when Arias sent his letter of
withdrawal to Laudico, he had not yet received the letter of acceptance, and when it reached
him, he had already sent his letter of withdrawal. Under these facts we believe that no contract
was perfected between the plaintiffs and the defendants.
The parties agree that the circumstances under which that offer was made were such that the
offer could be withdrawn at any time before acceptance.
Under article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not have any
effect until it comes to the knowledge of the offerer. Therefore, before he learns of the
acceptance, the latter is not yet bound by it and can still withdraw the offer. Consequently, when
Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had the right to do so, inasmuch as he
had not yet received notice of the acceptance. And when the notice of the acceptance was
received by Mr. Arias, it no longer had any effect, as the offer was not then in existence, the
same having already been withdrawn. There was no meeting of the minds, through offer and
acceptance, which is the essence of the contract. While there was an offer, there was no
acceptance, and when the latter was made and could have a binding effect, the offer was then
lacking. Though both the offer and the acceptance existed, they did not meet to give birth to a
contract.
Our attention has been called to a doctrine laid down in some decisions to the effect that
ordinarily notice of the revocation of an offer must be given to avoid an acceptance which may
convert it into a binding contract, and that no such notice can be deemed to have been given to
the person to whom the offer was made unless the revocation was in fact brought home to his
knowledge.
This, however, has no application in the instant case, because when Arias received the letter of
acceptance, his letter of revocation had already been received. The latter was sent through a
messenger at 11.25 in the morning directly to the office of Laudico and should have been
received immediately on that same morning, or at least, before Arias received the letter of
acceptance. On this point we do not give any credence to the testimony of Laudico that he
received this letter of revocation at 3.30 in the afternoon of that day, Laudico is interested in
destroying the effect of this revocation so that the acceptance may be valid, which is the
principal ground of his complaint.
But even supposing Laudico's testimony to be true, still the doctrine invoked has no application
here. With regard to contracts between absent persons there are two principal theories, to wit,
one holding that an acceptance by letter of an offer has no effect until it comes to the knowledge
of the offerer, and the other maintaining that it is effective from the time the letter is sent
The Civil Code, in paragraph 2 of article 1262, has adopted the first theory and, according to its
most eminent commentators, it means that, before the acceptance is known, the offer can be
revoked, it not being necessary, in order for the revocation to have the effect of impeding the
perfection of the contract, that it be known by the acceptant. Q. Mucius Scvola says apropos:
"To our mind, the power to revoke is implied in the criterion that no contract exists until the
acceptance is known. As the tie or bond springs from the meeting or concurrence of the minds,
since up to that moment there exists only a unilateral act, it is evident that he who makes it must
have the power to revoke it by withdrawing his proposition, although with the obligation to pay
such damages as may have been sustained by the person or persons to whom the offer was
made and by whom it was accepted, if he in turn failed to give them notice of the withdrawal of
the offer. This view is confirmed by the provision of article 1257, paragraph 2, concerning the
case where a stipulation is made in favor of a third person, which provision authorizes the
contracting parties to revoke the stipulation before the notice of its acceptance. That case is
quite similar to that under comment, as said stipulation in favor of a third person (who, for the
very reason of being a third person, is not a contracting party) is tantamount to an offer made by
the makers of the contract which may or may not be accepted by him, and which does not have
any effect until the obligor is notified, and may, before it is accepted, be revoked by those who
have made it; therefore, the case being similar, the same rule applies."
Under the second theory, the doctrine invoked by the plaintiffs is sound, because if the sending
of the letter of acceptance in itself really perfects the contract, the revocation of the offer, in
order to prevent it, must be known to the acceptor. But this consideration has no place in the
first theory under which the forwarding of the letter of acceptance, in itself, does not have any
effect until the acceptance is known by the person who has made the offer.
The judgment appealed from is reversed and the defendants are absolved from the complaint,
without special finding as to costs. So ordered.
OBLIGATION AND CONTRACT

Statute of Fraud
which is a device employed as a defense in a breach of contract lawsuit. Every state has some
type of statute of frauds; the law's purpose is to prevent the possibility of a nonexistent
agreement between two parties being "proved" by perjury or Fraud. This objective is
accomplished by prescribing that particular contracts not be enforced unless a written note or
memorandum of agreement exists that is signed by the persons bound by the contract's terms
or their authorized representatives.

in pari delicto

When the parties to a legal controversy are in pari delicto, neither can obtain affirmative relief
from the court, since both are at equal fault or of equal guilt. They will remain in the same
situation they were in prior to the commencement of the action.

Rescissible Contracts
Those which have caused a particular economic damage either to one of the parties or to a third
person and which may be set aside even if valid. It may be set aside in whole or in part, to the
extent of the damage caused. (Art. 1381, NCC)
 INCOME TAXATION

Capital assets
Are significant pieces of property such as homes, cars, investment properties, stocks, bonds,
and even collectibles or art. For businesses, a capital asset is a type of asset with a useful life
longer than a year, that is not intended for sale in the regular course of the business's operation.
For example, if one company buys a computer to use in its office, the computer is a capital
asset, but if another company buys the same computer to sell, it is considered inventory.

What are not capital assets

Any stock in trade, consumable stores, or raw materials held for the purpose of business or
profession have been excluded from the definition of capital assets.
Any movable property (excluding jewellery made out of gold, silver, precious stones, and
drawing, paintings, sculptures, archeological collections, Dinosaur bones, etc.) used for
personal use by the assessee or any member (dependent) of assessees family is not treated as
capital assets. For example, wearing apparel, furniture, car or scooter, TV, refrigerator, musical
instruments, gun, revolver, generator, etc. is the examples of personal effects. Agricultural land
situated in rural area.6.5% gold bonds or 7% gold bonds 1980, national defense gold bond
1980, issued by the central government.Special bearded bonds, 199.Gold deposit bonds issued
under gold deposit scheme, 1999.

Holding Period
refers to the time during which an investor holds a given security.

Allowance for depreciation

An accumulated expense that writes off the cost of a fixed asset over its expected useful
life.

Depreciation
. A decline in the value of a given currency in comparison with other currencies. For instance, if
the U.S. dollar depreciates against the Euro, buyers would have to pay more dollars in order to
obtain the original amount of euros before depreciation occurred.

Bad Debt
an uncollectible debt. The problem is to determine when a debt is realisticallydead, which mean
s theremust be some evidence of uncollectibility or a lengthypassage of time.Discharge in bankr
uptcy, the runninofthe statute of limitationsto bring a lawsuit, disappearance of the debtor, a patt
ern of avoiding debts or thedestruction of the collateral security can all make a debt "bad." For in
come taxdeduction purposes such debt in business is deductible against ordinary income(found
in Schedule C) and such a personal debt is deductible against shorttermcapital gains. A debt du
e for services rendered is not a bad debt for tax purposes,since there is just no income on which
to be taxed.
 Strong vs. Repide

Although there is no technical finding of facts by the Court of First Instance of the
Philippine Islands, if the opinion shows the facts on which the judgment is based and
the courts below differ in regard thereto, they may be reviewed by this Court under 10
of the Act of July 1, 1902, c. 1369, 32 Stat. 691. De la Rama v. De la Rama, 201 U. S.
303.

Where a sale made through an agent of the vendor has been effected by the fraud and
deceit of the vendee, the sale cannot stand whether or not the vendor's agent had
power to sell.

A director upon whose action the value of the shares depends cannot avail of his
knowledge of what his own action will be to acquire shares from those whom he
intentionally keeps in ignorance of his expected action and the resulting value of the
shares.

This is a rule of common law, and also of the Spanish law before the adoption of the
Philippine Civil Code; and, under 1261-1269 of that code, a contract obtained under
such circumstances can be avoided by the party whose consent would not have been
given had he known the facts within the knowledge of the other party.

Even though a director may not be under the obligation of a fiduciary nature to disclose
to a shareholder his knowledge affecting the value of the shares, that duty may exist in
special cases, and did exist upon the facts in this case.

In this case, the facts clearly indicate that a director of a corporation owning friar lands
in the Philippine Islands, and who controlled the action of the corporation, had so
concealed his exclusive knowledge of the impending sale to the government from a
shareholder from whom he purchased, through an agent, shares in the corporation, that
the concealment was in violation of his duty as a director to disclose such knowledge,
and amounted to deceit sufficient to avoid the sale; and, under such circumstances, it
was immaterial whether the shareholder's agent did or did not have power to sell the
stock.
While the method of payment cannot have induced the vendor's consent to a sale,
where that method tended to conceal the identity of the purchaser and was part of a
scheme to conceal facts, the knowledge of which would have resulted in vendor's
refusal to sell, evidence as to the payment is admissible to show the fraudulent intent
and scheme of the purchaser.

The expressed prohibitions in 1459 of the Spanish Civil Code against directors of
corporations acquiring shares of stock entrusted to them do not apply to purchases from
others.An expressed prohibition against directors acquiring shares held by themselves
in a fiduciary capacity does not refer to purchases by directors of shares from others, or
so limit the prohibitions against purchases of stock by directors that a sale to one cannot
be avoided by his deceit in not disclosing material facts within his exclusive knowledge.
Although there may be objections to the form of judgment in the Court of First Instance,
as they are not of a material nature, this Court will follow the same course.

6 Phil. 680 reversed.

This action was commenced on the twelfth day of January, 1904, in the Court of First
Instance of the City of Manila, Philippine Islands, by the plaintiffs in error, Eleanor Erica
Strong and Richard P. Strong, her husband, against the defendant in error. It was
brought by the plaintiff Mrs. Strong, as the owner of 800 shares of the capital stock of
the Philippine Sugar Estates Development Company, Limited (the other plaintiff being
added as her husband), to recover such shares from defendant (who was already the
owner of 30,400 of the 42,030 shares issued by the company) on the ground that the
shares had been sold and delivered by plaintiff's agent to the agent of defendant without
authority from plaintiff, and also on the ground that defendant fraudulently concealed
from plaintiff's agent, one F. Stuart Jones, facts affecting the value of the stock so sold
and delivered. The stock was of the par value of $100 per share, Mexican currency.

The plaintiff never had any negotiations for the sale of the stock herself, and was
ignorant that it was sold until some time after the sale, the negotiations for which took
place between an agent of the plaintiff and an agent of defendant, the name of the
defendant being undisclosed.
In addition to his ownership of almost three-fourths of the shares of the stock of the
company, the defendant was one of the five directors of the company, and was elected
by the board the agent and administrator general of such company, "with exclusive
intervention in the management" of its general business.

The defendant put in issue the lack of authority of the agent of the plaintiff, denied all
fraud, and alleged that the purchase of the stock from plaintiff's agent (which stock was
payable to bearer and transferable by delivery) was made by one Albert Kauffman, who
afterwards sold and conveyed the same to the

Defendant, and that the defendant, prior to the commencement of the suit and prior to
any demand made upon him by the plaintiff in error herein, had sold, transferred, and
delivered the stock to Luis Gutierrez, a citizen and resident of Spain. (He was a brother
of the defendant.)

Dauden vs. Angeles

Marlene Dauden-Hernaez was a motion picture actress. She filed a complaint against
respondents Hollywood Far East Productions and its President and General Manager,
Ramon Valenzuela to recover P14,700 representing a balance allegedly due Dauden
for her services as leading actress in 2 motion pictures produced by the company, and
to recover damages. CFI QC dismissed the complaint, mainly because the claim of
plaintiff was not evidenced by any written document, either public or private, and the
complaint was defective on its face for violating Articles 1356 and 1358 of the Civil Code
DOCTRINE: In our contractual system, it is not enough that the law should require that
the contract be in writing. The law must further prescribe that without the writing, the
contract is not valid or not enforceable by action.