Laudico vs. Rodriguez

An offer to enter into a contract may be revoked at any time before the acceptance comes to the knowledge of the offeror; for the revocation to prevent perfection of the contract, it is not necessary that the revocation be communicated to or known by the offeree before he dispatches his acceptance, because under Article 1262, paragraph 2, of the Civil Code an acceptance by letter does not bind the offeror until the moment he learns of it.

Defendant Vicente Arias, acting on his own behalf and on behalf of his co-owners, wrote to plaintiff Mamerto Laudico on February 5, 1919, providing an option to lease a building on Carriedo Street and transmitting a tentative written contract with the proposed lease conditions. Laudico later presented his co-plaintiff Fred M. Harden as the prospective lessee. The parties engaged in further negotiations, exchanging modifications, counter-proposals, and clarifications by correspondence and in interviews with Vicente Arias.

• The Negotiations: On February 5, 1919, defendant Vicente Arias, for himself and his co-owners, wrote plaintiff Mamerto Laudico granting an option to lease a building and forwarded a tentative written contract with the proposed terms. Laudico later presented Fred M. Harden as the intended lessee. The parties continued negotiations, adding conditions, making counter-propositions, and seeking clarifications through letters and interviews.
• The Final Acceptance: On March 6, 1919, Laudico sent a letter to Arias stating that all of Arias’ propositions, as amended and supplemented, were accepted. This letter was received by Arias by special delivery at 2:53 p.m. that day.
• The Withdrawal of the Offer: Earlier on the same day, at 11:25 a.m., Arias had written and dispatched a letter to Laudico withdrawing the offer to lease. When Arias sent the withdrawal, he had not yet received notice of Laudico’s acceptance.
• Receipt of the Withdrawal: Laudico testified that he received the withdrawal letter only at 3:30 p.m., after Arias had received the acceptance. The Court gave no credence to that testimony, finding that the letter sent by messenger at 11:25 a.m. to Laudico’s office should have been received immediately that morning or at least before Arias received the acceptance letter.
• Concession of Revocability: The parties agreed that, under the circumstances, the offer could be withdrawn at any time before acceptance.

• No Contract Perfected: Defendants maintained that no binding lease contract was formed because the offer had been withdrawn before the acceptance took effect. The acceptance letter had no binding force until it came to the knowledge of the offeror, and by that time the offer had already been revoked.

• Revocation Ineffective Without Notice: Plaintiffs invoked the doctrine that notice of revocation of an offer must be brought home to the knowledge of the offeree to prevent an acceptance from ripening into a contract. They argued that because Laudico received the withdrawal letter only after Arias had already received the acceptance, the revocation could not defeat the contract.
• Perfection Upon Dispatch of Acceptance: Plaintiffs implicitly relied on the theory that an acceptance by letter perfects the contract from the moment of mailing or dispatch, thus the later-received revocation could not nullify it.

• Perfection of Contract: Whether a contract of lease was perfected given that the offeror withdrew the offer after the acceptance was dispatched but before he received knowledge of the acceptance.

• Perfection of Contract: No contract was perfected. Under Article 1262, paragraph 2, of the Civil Code, an acceptance by letter does not produce any effect until it comes to the knowledge of the offeror. Consequently, before the offeror learns of the acceptance, he is not bound and retains the power to withdraw the offer. In this case, when Vicente Arias wrote the letter withdrawing the offer at 11:25 a.m., he had not yet received notice of the acceptance; he therefore had the right to revoke. When the notice of acceptance reached him later at 2:53 p.m., it had no effect because the offer no longer existed, having already been withdrawn. There was no simultaneous concurrence of offer and acceptance — the essence of a contract. The offer existed when there was no acceptance, and the acceptance existed when the offer had ceased. The doctrine that a revocation must be communicated to the offeree to prevent a binding contract applies only under the theory that the contract is perfected upon the sending of the acceptance (the manifestation theory). The Civil Code, however, adopts the cognition theory, under which the sending of the acceptance alone does not perfect the contract; the offeror must come to know of the acceptance. Before that knowledge, the offer may be revoked without need of prior notice to the offeree.

• Cognition Theory under Article 1262, paragraph 2, Civil Code — In contracts between absent persons, an acceptance by letter produces no juridical effect until the moment it comes to the knowledge of the offeror. Until that moment, the offeror remains free to revoke the offer. The revocation need not be communicated to the offeree prior to the latter’s dispatch of an acceptance; the offeror’s power to revoke is implied by the rule that no contract exists until the acceptance is known. The perfection of the contract requires the meeting of offer and acceptance, which fails when the offer has been withdrawn before the acceptance becomes effective upon knowledge.
• Distinction from the Manifestation Theory — The Supreme Court distinguished the Philippine rule from the alternative theory that a contract is perfected upon the sending of the acceptance. Under the manifestation theory, a timely revocation would need to reach the offeree before the acceptance is sent; the Civil Code rejects that approach.

• “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 receive 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.”
• From Q. Mucius Scaevola: “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.”

• N/A (The decision does not cite any prior judicial decisions; it relies principally on the Civil Code and a doctrinal commentary by Mucius Scaevola.)

• Article 1262, paragraph 2, Civil Code — Acceptance by letter does not bind the offeror until it comes to his knowledge. The Court applied this to hold that Arias could revoke his offer at any time before he actually learned of Laudico’s acceptance, and the contract never arose.
• Article 1257, paragraph 2, Civil Code — Provides an analogy concerning a stipulation in favor of a third person, which may be revoked before the third person notifies his acceptance. The Court noted that the same principle applies to offers revocable before acceptance is known.

Araullo, C.J., Malcolm, Villamor, Johns, and Romualdez, JJ., concurred.

• None.