Case Summary (G.R. No. L-4974-78)
Petitioner and Respondent
Petitioners: Laudico and Harden, seeking specific performance compelling the defendants to execute the proposed lease. Respondents: Vicente Arias and his co-owners, who made the original offer and later attempted to withdraw it.
Key Dates and Events
- February 5, 1919: Vicente Arias, on behalf of himself and co-owners, transmitted to Laudico a written option and a tentative lease contract containing proposed conditions.
- During subsequent negotiations, additional conditions and counter-propositions were exchanged by correspondence and interviews.
- March 6, 1919, 11:25 a.m.: Arias sent a letter, delivered by messenger, withdrawing the offer.
- March 6, 1919, 2:53 p.m.: Laudico’s letter of acceptance was delivered to Arias by special delivery (according to the parties, receipt at 2:53 p.m.). Laudico testified he received the revocation at 3:30 p.m., a point the court did not credit.
Procedural Posture
Plaintiffs sought an order compelling execution of the lease. The trial court entered a judgment adverse to the defendants; the defendants appealed. The Supreme Court reviewed whether a contract was perfected and ultimately reversed the lower court, absolving the defendants.
Material Facts
Ariasis made a revocable offer to lease the building and transmitted a written tentative contract. Laudico presented Harden as the lessee and, after negotiations, Laudico sent a written letter on March 6, 1919 stating that all amended and supplemented propositions were accepted. Arias had previously sent a written revocation at 11:25 a.m. that same day by messenger to Laudico’s office. When Laudico’s acceptance reached Arias at 2:53 p.m., Arias had already sent the revocation earlier that morning.
Legal Issue
Whether, under the circumstances, a binding contract of lease arose by reason of the acceptance sent by letter, and specifically whether an acceptance by letter is effective upon dispatch or only upon receipt and knowledge by the offeror.
Applicable Law
The court applied article 1262, paragraph 2, of the Civil Code (acceptance by letter has no effect until it comes to the knowledge of the offeror) and invoked the principle embodied in article 1257, paragraph 2 (illustratively referenced) concerning the revocability of stipulations prior to notice of acceptance. The court discussed two competing theories on acceptance by correspondence: (1) acceptance is effective only when known by the offeror (the rule adopted by the Civil Code provision cited), and (2) acceptance is effective from the time the acceptance letter is sent.
Court’s Analysis on Formation of Contract
The court held that under the Civil Code’s rule, an acceptance by letter is ineffective until it comes to the knowledge of the offeror; therefore the offeror retains the power to revoke the offer prior to knowledge of the acceptance. Applying that rule to the facts, Arias lawfully withdrew his offer at 11:25 a.m. before he had knowledge of Laudico’s acceptance received at 2:53 p.m. Because the acceptance neither had effect at the time of sending nor produced a meeting of the minds before revocation became known to the offeror, no contract was perfected. The court emphasized that the essence of contract formation is the concurrence of offer and acceptance; here, although both acts occurred, they did not coincide in time so as to produce a binding agreement.
Doctrine Considered and Rejected by the Court
The plaintiffs invoked a doctrine that, to avoid an acceptance from converting an offer into a binding contract, notice of revocation must be effectively brought home to the offeree; the court explained that this doctrine applies under the second theory (acceptance effective upon dispatch). However, because the Civil Code adopted the first theory (acceptance effective only upon knowledge), the court declined to apply the plaintiffs’ doctrine in the present case. The court cited commentary and a statement attributed to Q. Mucius Scaevola explaining that the power to revoke is implied where no contract exists until acceptance is known, subject to possible liability for damages if the revoking party failed to give notice of the withdrawal.
Credibility and Evidence Ruling
The court discredited Laudico’s testimo
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Citation and Panel
- Reported at 43 Phil. 270, G.R. No. 16530, decided March 31, 1922.
- Decision authored by AVANCEAA, J.
- Judges concurring: Araullo, C. J., Malcolm, Villamor, Johns, and Romualdez, JJ.
Parties
- Plaintiffs and appellants: Mamerto Laudico and Fred. M. Harden.
- Defendants and appellants: Manuel Arias Rodriguez et al.
- Specific defendant prominently involved in the correspondence: Vicente Arias, who, with his codefendants, owned the building Nos. 205 to 221 on Carriedo Street.
Relief Sought by Plaintiffs
- The principal prayer of the plaintiffs was that the defendants be compelled to execute the contract of lease of the building in question (specific performance of the purported lease contract).
Facts — Offer, Negotiations and Tentative Contract
- On February 5, 1919, Vicente Arias, on his own behalf and on behalf of his co-owners, wrote a letter to Mamerto Laudico giving him an option to lease the building and transmitted a tentative written contract containing the proposed conditions for the lease.
- Mr. Laudico later presented Mr. Fred. M. Harden as the party desiring to lease the building.
- Negotiations ensued: additional conditions were added to the tentative contract, counter-propositions were made, and explanations were requested to clarify certain points.
- Negotiations were conducted by correspondence and verbally during interviews with Mr. Vicente Arias.
- No definite agreement was reached during these negotiations until March 6, 1919, when Mr. Laudico sent a letter to Mr. Arias advising that all his propositions, as amended and supplemented, were accepted.
Timeline of Correspondence on March 6, 1919
- March 6, 1919, at 11:25 a.m.: Mr. Arias wrote a letter to Mr. Laudico withdrawing the offer to lease the building and sent that letter through a messenger directly to Laudico’s office.
- March 6, 1919, at 2:53 p.m.: Mr. Arias received, by special delivery, the letter from Mr. Laudico advising that all propositions were accepted.
- Testimony by Laudico claimed he received the revocation letter at 3:30 p.m. on the same day; the court expressed disbelief in this testimony and noted Laudico had an interest in destroying the effect of the revocation so that the acceptance might be held valid.
Procedural Posture
- The plaintiffs sought judicial enforcement (specific performance) on the basis that a binding lease contract had been perfected by offer and acceptance.
- The appealed judgment was reviewed by the court in the light of the facts concerning the timing of the revocation and the receipt of acceptance.
Legal Issue Presented
- Whether a contract was perfected between the plaintiffs and defendants when the purported acceptance by letter reached the offeror after the offeror had sent a revocation of the offer, and whether an acceptance by letter is effective from the time it is sent or from the time it comes to the knowledge of the offeror under the applicable provision of the Civil Code.